Inheritance Tax:
Planning Is Vital
Did you know you may be able to pass up to £1 million to your children free of Inheritance Tax, when you die? Napthens wills and estate planning specialist Farida Isaji explains
HM Treasury have confirmed that Inheritance Tax (IHT) receipts are up 14 per cent year on year in 2021-2022 hitting a record high of £6.1 billion.
This surge in IHT payments is attributable to varying factors but particularly the rise in asset values as well as the UK Governments move to freeze the Nil Rate Band (NRB) for IHT to £325,000 until 2026 at the earliest.
If the value of your estate is above the £325,000 threshold, then IHT may be applied at 40 per cent above that amount.
However, 6th April 2017 marked the first time that former Chancellor George Osborne’s 2015 ‘£1 million IHT free’ statement became fact. The Government introduced an additional allowance for deaths after 6th April 2017 known as the Residence Nil Rate Band (RNRB) that can now increase your tax-free threshold by an extra £175,000.
Any assets passing to a spouse or civil partner (CP) when you die are free of IHT. Therefore, your NRB might be increased if you are widowed or are a surviving CP. A surviving spouse or CP’s estate can claim any unused NRB from the first to die’s estate. This can double the amount of NRB available up to £650,000 on second death. RNRB is transferable between spouses/CPs in a similar way to the NRB. This can double the amount of RNRB available to £350,000. Adding these together, would give you a potential allowance of £1million before any IHT is payable.
RNRB is fully available to anyone who:
• Passes the family home to ‘direct descendants’ – broadly children/grandchildren and/or their spouses, and this definition includes stepchildren on death
• Had a family home, then downsized on or after 8th July 2015 (passing on assets of equivalent value to ‘direct descendants’ in their will),
• Has a net estate below £2m
RNRB unfortunately adds a layer of complexity. The ability to pass up to £1 million of your estate IHT-free will be available in certain circumstances. But establishing the position could be very complicated and will depend on several factors including marital status, whether you have children, value of your family home, value of your total estate on death – and who ultimately inherits the family home.
If you want to maximise the benefits of the RNRB you should consider the terms of your Will and consider the need for lifetime estate planning to help minimise IHT exposure.
For more information please contact a member of the Napthens team
Farida Isaji is Senior Associate Solicitor at Napthens and a qualified member of the Society of Trust and Estate Practitioners
