Recent figures revealing record inheritance tax (IHT) receipts last year highlight the fact that IHT continues to be an issue for many – despite the introduction of the residence nil-rate band (RNRB). In a changing and sometimes confusing area, we look at a few of the important considerations.
Some key IHT reliefs
Married couples and civil partners can benefit from transferrable nil-rate band, where any amount unused after a death can be passed to the surviving partner. This means that, if there was no inheritance passed to others, the surviving partner would be able to leave up to £650,000 tax free before the statutory 40% IHT rate took effect. Accordingly, all transfers of assets – including lifetime transfers and those made on death – between spouses are exempt from IHT.
In addition, the RNRB relief is currently being phased in. This allows a family home to pass to direct descendants, such as children or grandchildren, creating an additional nil-rate band as detailed below. Provisions exist to cover situations where someone has downsized or sold to raise capital to, for example, cover care home fees.
The RNRB is being increased in a series of stages, as follows:
This means that by 2020, a couple will be able to pass on total assets worth £1 million (£325,000 plus £175,000 each). For estates worth over £2 million, though, there will be a tapered withdrawal of the RNRB and this figure does not take into account business or agricultural reliefs.
Other forms of relief
Planning your inheritance in advance is made all-the-more prudent by the fact that larger lifetime gifts may become exempt from IHT after seven years, whilst most smaller or regular lifetime gifts are immediately excused. Unused funds in a private pension can usually also pass directly to beneficiaries without being included in the chargeable estate.
In response to these complexities and vagaries, the Chancellor has commissioned the Office of Tax Simplification (OTS) to review and advise on a range of aspects relating to IHT.
We can offer assistance with all aspects of IHT and estate planning, so please get in touch with us on 01392 211233 for further help and advice.