Inheritance Tax Planning

The government has set the inheritance tax (IHT) threshold at £325,000 for each person, meaning that married couples/civil partners can have a joint estate of £650,000 before any tax is payable,  In most cases tax is currently payable at 40% of everything over the tax threshold.

Fortunately, if your estate is likely to be over the threshold, with some help and some careful tax planning there are ways to minimise inheritance tax and make sure your loved ones get the maximum benefit of your estate.

You may also benefit from the residence nil-rate band (RNRB) if you leave your residential property to direct descendants. You must meet the qualifying criteria to be able to utilise this allowance. The RNRB allowance is £175,000 for each person in 2020-21. A couple will be able to use two allowances along with their existing nil-rate band of £325,000 allowance. This means they may be able to pass a £1m estate to their direct descendants without attracting Inheritance Tax as long as the qualifying criteria is met. Direct descendants include children, grandchildren, step-children, adopted and fostered children and their spouses or civil partners.

To benefit from the full RNRB you must leave a property worth the at least the value of the RNRB, be leaving it to direct descendants and your total estate must be below £2m.

The important word here is ‘planning’, as there are rules that can take several years to take effect and leave you in the best position with regards to the tax due on the assets you leave behind.

Speaking to an independent financial adviser will help you to find out more about how to minimise the inheritance tax on your estate.