Inheritance Tax & Marriage

In his latest blog, Trainee Solicitor Michael Radze-Constable discusses the Inheritance Tax rise and how marriage can effect your taxable state…

Some of the few rare certainties in life are death and taxes. We all pay our taxes (unless we utilise the same lucrative loopholes as the rich and famous) and we will all die (unless we discover a pill for immortality)! However, what is sometimes uncertain is how much Inheritance Tax (if any) is payable by our estate on our death.

One certainty, however, is that Inheritance Tax is on the rise, and while there have not been any recent changes to the threshold for Inheritance Tax itself, new data released by HMRC has revealed that Inheritance Tax receipts are £700 million higher than this time last year. Figures from April 2022 to December 2022 illustrate that Inheritance Tax hit £5.3 billion in total!

Why Is Inheritance Tax On The Rise?

One potential explanation is the soaring property prices witnessed in 2022. Forbes report that, property prices are £46,403 (or 19.4%) higher than at the onset of the pandemic in 2020. Consequently, Residential Nil Rate Band worth up to £175,000 for an individual who owns a property and is leaving their estate to lineal descendants is becoming less effective at protecting your estate from Inheritance Tax.

Another potential explanation is HMRC’s purported targeting of bereaved families via the “Inheritance Tax raids”. HMRC reportedly collected £326 million between March 2021 and 2022 via targeted investigations into wealthier individuals.

How Will My Marriage Reduce My Taxable Estate?

Tax is charged at the rate of 40% on the value of an individual’s estate which falls above the Inheritance Tax thresholds.

Individuals have a Nil Rate Band allowance of £325,000 and a Residential Nil Rate Band (attaching to property passing to lineal decedents) of up to £175,000. If the full allowances are available, an individual could have up to £500,000 relief before Inheritance Tax is charged at 40% on the balance over and above this.

However, if you are married, and your spouse dies before you, their unused Nil Rate Band can be claimed against your estate when you (as the surviving spouse) pass away. Potentially, £1 million of your estate could be tax free with tax chargeable at 40% on the balance.