Tax is one of life’s necessary evils, we pay tax when we’re alive and then again, our estate is taxed when we die. Whilst you may have read about inheritance tax and know what it is, understanding how it works and when it is payable is crucial when considering your estate planning options and planning for the future.
What is Inheritance Tax?
Inheritance Tax is the tax payable on someone’s death if the value of their estate, which includes cash, property, shares and personal effects etc is above the inheritance tax threshold.
What is the rate of inheritance tax?
For a single person the inheritance threshold is currently £325,000 (which is frozen until 5th April 2030) and tax is payable at 40% over and above this amount.
What about married couples and the ‘double threshold’?
If you are a married couple or in a civil partnership, then you each have a nil rate band of £325,000. If your estate passes to your spouse or civil partner on the first death, then that gift will pass with the benefit of spouse exemption so you will not pay inheritance tax and you will not have used your nil-rate band, 100% of it will remain intact.
What about the Residence Nil Rate Band?
The Residence Nil Rate Band was introduced in 2017 and provides a further tax allowance which is currently up to £175,000. The Residence Nil Rate Band is not automatic and there are strict criteria that must be met for the allowance to be available. The deceased must own a property, and the property must be left to lineal descendants.
Where to pay inheritance tax and who is responsible for payment?
Inheritance tax is paid to HM Revenue and Customs. There is a deadline imposed by which you have to have settled any payment of inheritance tax by the end of the sixth month following the date of death.
In some cases, if the deceased owned a property and the cash is tied up in the property it may be possible to pay the inheritance tax in instalments. It is important to get advice if considering this option as there are deadlines that must be met and interest that needs to be considered.
It all seems really complicated, what should we do?
Tax can be daunting, and it can be complicated. A recent report has suggested that there has been a 41% increase in HMRC looking more in depth into application submitted. They are checking the figures provided are accurate as grieving families face more scrutiny. Therefore, seeking advice to understand the position on tax is important if tax is payable. Professional advisers can guide you through the process.
Next Steps...
If you’d like any more information on estate or tax planning, please contact me on 01530 564498 or by email at m.lovell@timms-law.com.
For more information about Inheritance Tax, visit our webpage here.
