What is Inheritance Tax?

Whilst it was originally set up as a wealth tax, Inheritance Tax no longer affects only the wealthy. While most people are aware of the existence of Inheritance Tax, it’s a subject that gives rise to some distaste or lack of interest and many, would rather delay consideration of the matter. As a result, so few people do anything about their potential Inheritance Tax liability. HMRC collected £7.9bn Inheritance Tax receipts in the 2022/2023 tax year.

Some people see Inheritance Tax as being a voluntary tax in that, there are ways to structure your assets to mitigate your Inheritance Tax liability – something we specialise in at Heritage Will Writing.

This leaflet covers the basics of Inheritance Tax, but more detailed information can be found by visiting www.heritagewillwriting.co.uk.

Inheritance Tax – The Basics

• The Nil Rate Band (NRB) is currently set at £325,000 per individual
• Inheritance Tax is paid at a rate of 40% on everything above the NRB (£325,000)
• The Residential Nil Rate Band (RNRB) was introduced in April 2017 with the aim of allowing families to pass on up to £1m of their estate before Inheritance Tax becomes payable. The RNRB allowance reached its maximum allowance claimable at £175,000 as of 6 April 2020. Larger estates may not see the benefit of the RNRB, as the allowance is reduced by £1 for every £2 that is exceeding £2m
• The RNRB is available when residential property is left to direct descendants (children), however direct descendants can include adopted children, foster children and stepchildren, or linear descendants (grandchildren). If you do not have any descendants, this allowance cannot be claimed
• Since October 2007, a surviving spouse or civil partner can use the unclaimed percentage of their deceased spouse or civil partner’s Inheritance Tax allowances, in addition to their own allowances on death
• There is no Inheritance Tax to pay if you leave your estate to a spouse or civil partner, a charity or a community amateur sports club
• Under the Annual Exemption, you can give away up to £3,000 in gifts each tax year
• Other Exemptions include; wedding or civil ceremony gifts, normal gifts out of your income for birthdays and Christmas (providing you still maintain your standard of living after making those gifts), payments to help with another person’s living costs (an elderly relative or a child under 18), and gifts to charities and political parties
• You can give as many gifts as you like (up to £250 per person), providing you haven’t used another Exemption on the same person
• Potentially Exempt Transfers (PETs) are larger gifts that may be exempt from Inheritance Tax, providing you survive 7 years after making the transfer. If you die within 7 years, the transfer will be treated as a gift and Inheritance Tax may be payable on a sliding scale, depending how long you survived

If you need any help or advice with regards to Inheritance Tax planning, please contact us on 02380 879243 or email info@heritagewillwriting.co.uk.