Inheritance Tax is a tax that is usually charged on death and is calculated based on the value of the deceased’s assets at the date of their death.
The Nil Rate Band
In the UK, individuals have a Nil Rate Band allowance of £325,000. Any assets held by a deceased person up to this amount are chargeable at 0%. However, if their assets exceed £325,000 then tax will be due on the amount about £325,000 at 40% (or a reduced rate of 36% if the charity reduction applies).
The Residence Nil Rate Band
Where an individual owns a property which is being left to their lineal descendants an additional allowance called the ‘Residence Nil Rate Band’ can be claimed up to £175,000 depending on the value of the property.
Therefore, an individual could have an allowance of up to £500,000.
Transferrable Nil Rate Band Allowances
Where an individual dies leaving their estate to a spouse or civil partner, there is no tax to pay.
As there is no tax to pay, the individual has not utilised their Nil Rate Band or Residence Nil Rate Band allowances, which means that these are available to be transferred to the surviving spouse or civil partner’s estate on their death.
Effectively, this means that the surviving spouse or civil partner’s estate could benefit from an allowance of up to £1,000,000.
Reductions to the Nil Rate Band Allowances
However, where individuals have made lifetime gifts, transferred assets into trust in their lifetime or gifted an asset whilst retaining a benefit, the amount of the allowance available may be reduced by the value of that gift or transfer (or some of it). If the sums involved are quite significant, then this could result in tax being due.
It is also possible that in the case of a marriage or civil partnership, the first to die did not leave their entire estate to the surviving spouse or civil partner as they may have benefitted children too. If this is the case, then part of the Nil Rate Band Allowances will have been used, and only the unused portion can be transferred to the survivor’s estate.
Agricultural Relief and Business Property Relief
These are two reliefs that can be claimed against the value of qualifying agricultural or business assets to reduce the amount of tax due.
- Agricultural property relief is available for farmland and farm buildings where relief is given at a rate of 50% or 100%, depending on the circumstances.
- Business property relief is available for certain business interests and qualifying company shares located anywhere in the world. Relief is given at either 50% or 100%, depending on the circumstances.
Working out whether inheritance tax is due or not, and if so, how much is tricky so it is best to seek legal advice as getting it wrong can result in penalties and interest. There are deadlines imposed by HMRC as to how soon after someone’s death inheritance tax needs to be paid, so advice should be sought early on.
For further information regarding inheritance tax or if you would like to discuss a Wills & Probate related query with one of the team, please call us on 0800 011 6666 or e-mail the team at legal@timms-law.com.
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