What Is The IHT Tax-free Allowance?
In case you’re wondering,
The inheritance tax allowance1 is the amount of money that you can leave to your spouse or civil partner without paying any inheritance tax on it. This is currently set at £325,000 per person and will increase in line with inflation.
The inheritance tax allowance is also known as the nil-rate band, and this means that any money left over after your IHT exemption cannot be taxed.
Why is this so?
Inheritance tax is paid because everything you own has to come from someone else in some way, shape, or form, meaning all of our assets are gifted to us by previous generations through either buying them with a loan from their future selves, inheriting it themselves, or earning it themselves.
Inheritances represent one more step up the family tree chain, so they have to go back at least seven years before there can be no inheritance tax on anything!
What Are The IHT Tax Rates?
There are three different rates for inheritance tax depending on how closely related they were to the deceased:
Let’s have a look:
• Nil rate2– this means there was no relationship between you and the deceased person other than as a close family member (spouse, parent/grandparent, child under 18 years old)
• First band – this relates to children aged over 18 but not yet been married or become widowed; grandchildren up until their death but not before age 18
• Second band – this relates to other family members (brothers, sisters)
The first £325k can be transferred free from capital gains if necessary! This is a great option where there are multiple family members.
• Third band – Parents, step-parents, and grandparents (£950k per person for 2018/19)
The last £450k can be transferred free from capital gains if necessary! This is an excellent option for two families to share the inheritance (but not between spouses or civil partners).
Who Will Pay the IHT?
The inheritance tax is only paid by those inheriting the estate above their own IHT allowance. This means that if they have an IHT allowance of £325k and the estate is worth £500,000. Then no inheritance tax will be due.
The most effective way to do this is with careful planning before death. Outlining wills and legacies in a manner that seeks to keep below the thresholds for inheritance tax charges should help (e.g., siblings may gift their estates/property to each other free from capital gains) while also reducing any risk on future generations!
Do Spouses Have To Pay IHT?
The inheritance tax can provide a variety of exemptions or reliefs to reduce liability for it!
A spouse inheriting from his/her partner will not usually be liable for the inheritance tax threshold! This includes when one party dies without leaving a valid will – if there’s no will, it won’t matter whether or not the deceased had any children or other relatives because the spouse will inherit everything.
One more thing to consider,
Inheritance tax is calculated on your estate when you die and not on what’s left of your assets after you’ve spent them. So it can be worth keeping in mind that if a person has few debts but needs lots of care, those costs may eventually come out of their assets, which might have been exempt from inheritance tax thresholds!
Another critical point is that IHT should only apply once, so parents don’t need to worry about paying twice as they’re passing an asset down to both their children at the same time – this means even with lower allowances and exemptions for widows/widowers, there’s less risk on future generations!
What About Gifts?
Gifts are exempt from inheritance tax rules, so if a donation is made seven years before death or one year after then, it won’t be subject to IHT.
It’s worth noting that there are exemptions for beneficiaries who have significant care requirements as well as an allowance available for parents leaving more than £250,000 to their children – but remember, this only applies where they haven’t used up their budgets!
If you think about any assets which might need passing onto someone else (whether your partner when you’re widowed or some other relative), then now is the time to get expert advice on how best to do this and make sure everything will be taken care of after your death.
Can Tax Scouts Take Care Of My IHT?
Tax Scouts can’t take care of the inheritance tax rate for savings because that would be illegal, and you’d have to pay taxes on the amount taken off.
If you want advice about inheritance tax rates or other estate planning aspects, please contact us for expert help with this. We recommend getting an early start as it’s much easier to do these things when you’re feeling well-rested than having to deal with them at short notice after a life change such as a bereavement.
How Much Can I Inherit From The Tax-free UK?
In the UK, you can inherit inheritance tax-free up to £325,000 or leave that much in your will.
How Can I Reduce My Inheritance Tax?
You can reduce inheritance tax by giving your money to charity or in specific ways through gifting.
How Much Money Can You Gift to a Family Member in the Tax-Free UK?
You can gift up to £325,000 inheritance tax-free.
Which is better? To Gift or Inherit Property?
It’s better to gift a property rather than inherit it. Inheritance tax rates are much higher.
In simpler terms,
Inheritance tax is one of the least talked about taxes, but it can have a significant impact on your finances
With the passing of a loved one, it is not uncommon for people to be concerned about how an inheritance will affect their finances. It is important to understand what you can and cannot claim as exempt from inheritance tax when preparing your estate