“‘In this world nothing can be said to be certain, except death and taxes.”
(Benjamin Franklin, 1789)
Inheritance tax (also known as IHT) is a tax on the estate of the deceased, classified as all your property, money possessions, investments, etc. minus any debts. IHT is one of the most controversial forms of tax and – thanks to Tory George Osborne – is to be scrapped on all properties valued at less than £1 million by 2020.
Opponents of IHT argue that it is unethical to tax people multiple times through Income Tax, Savings Tax, Capital Gains Tax, Stamp Duty and then “again through inheritance tax if they have the audacity to die.”
Supporters of IHT claim that inheritance “simply entrench[es] inequality” despite the fact that most wealth in England is self-made (between 82% and 52% according to a study of 57,000 families 1858-2012) and IHT creates far less tax revenue than other forms of taxation.
Regardless of your opinions on Inheritance Tax, it is currently a fact of life (and death) for everyone in the UK and must be paid before allocating your Estate. When you die, the Government assesses how much your estate is worth, deducting the value of any debts to give the value of your estate.
As mentioned in the Making a Will section of our site, your assets include:
- >Money in savings accounts
- >Properties or businesses you own
- >Pay-outs from any life insurance policies
Much like income tax, the government kindly allows you to leave behind a small estate (valued at £325,000 or less) without having to pay tax. This ‘Nil Rate Band’ (NRB) is per person, so a married couple can effectively leave £650,000 without paying IHT.
Any amount over the £350,000 individual NRB is subject to 40% taxation, which decreases to 36% if you leave 10% or more to a registered charity – excluding the ‘main residence’ allowance (explained below). For example, if your estate is worth £425,000, the first £325,000 is not taxed, but the government will take 40% of the remaining £100,000, leaving your beneficiaries with £385,000.
People in certain roles are exempt from paying inheritance tax if they die in active service, or because of injuries sustained during active service. These roles include armed personnel, police, firefighters, paramedics and humanitarian aid workers.
The New ‘Main Residence’ Band
An additional ‘Main Residence’ allowance was added to IHT legislation for the 2017/18 tax year. Also known as the Residence Nil Rate Band, it is only valid on main residences and where the recipient of the property is a direct descendant – classed as children, grandchildren and step-children. For this tax year (2019/20) the allowance adds an additional £150,000 to the NRB, meaning a total allowance of £475,000 per person.
For many people, having to pay Inheritance Tax after paying Income Tax, Stamp Tax, etc. throughout your life is a kick in the teeth that you would rather avoid. Well, we have some good news: there are a number of clauses and conditions that allow you to keep more of your property to pass on to your beneficiaries!
To learn more about our Inheritance Tax services and how best to leave your estate to loved ones, dependants and worthy causes, contact a member of our specialist Will and Probate Law team today. Either ring us directly on 0115 824 1700 or fill out an online contact form today.