Inheritance Tax
Inheritance Tax is a big revenue generator for the UK treasury. Receipts for HMRC are currently (
2023-24) at over £6billion a year. Strangely though, in 2023-24 it is likely
that only about 5% of estates will be liable for this tax. It is evident
however, that this may well increase, due to ‘Fiscal Drag’.- the means by which
the nil-rate band thresholds are staying
the same till 2028. As more estates exceed the nil-rate band thresholds. This
is a significant factor in today’s world of increasing asset and property
values.
It therefore makes good sense to get Professional help,
with Wills and Estate Planning, so that you are taking the best possible steps
to reduce any liability on your estate. IPW members can help you with these
areas.
Inheritance Tax is the tax applied in the UK, to the
estate of someone who has died. The deceased’s Executors (if the deceased made
a Will) or ‘Personal Representatives’ (if the deceased didn’t make a Will) are
responsible for assessing the Tax liability and making sure it’s paid to HMRC
within just over 6 months of the date of death.
How much?
Inheritance Tax is chargeable at 40% of the chargeable
excess. The excess is the amount of the deceased’s net estate that is greater
than their combined allowed ‘nil-rate bands, reliefs and exemptions’ at the
date of their death.
Just supposed the deceased’s net estate is valued at
£600,000 ( they have no main residence property)
Just suppose their available basic nil-rate band was
£325,000 ( the current basic nil-rate
band)
Their chargeable excess would be £600,000-£325,000 =
£275,000
The Tax due would be £275,000 x 40% = £110,000!
Mitigations
There are 2 main types of nil-rate bands, these are:
Basic Nil-Rate Band: £325,000
Main Residence Nil-Rate Band: up to £175,000 (only
if the deceased wholly owned their main residence property worth more than
£175,000, or the deceased’s share of their main residence property is worth
more than £175,000). There are no major changes to these in Rachel Reeves
budget of 2024.
There are various other reliefs available, and certain
allowable exemptions to help reduce the excess. It is wise to obtain advice
from a Professional Willwriter who can help you review the situation and look
at ways of mitigating, if possible.
Where would advice be needed?
Married Couple (or in a Civil Partnership)
Both types of Nil-rate bands can be transferred between
spouses, (depending on the situation) giving a potential combined nil-rate band
of £1,000,000. This will depend on various factors, including their residential
Property value and how their Wills are configured. Advice should be sought to
make sure things are done properly.
Unmarried couples
Unmarried couples ( or ‘common-law’ couples’ do not have the same ‘Combined
Nil-Rate Band’ advantages as married couples. Therefore, it's vital that
unmarried couples get appropriate help in maximising their available nil-rate
bands, exemptions and reliefs where possible. This is especially important
where either they own their property together, or only one of them owns their
home. Again, advice is vitally important.
Single with dependants
Where a person’s wealth is over the applicable ‘nil-rate
bands’ they need to be aware of the implications especially if they have
dependants (e.g. children and/or a partner) and there is property involved.
There may be situations where Trusts are needed. Again, advice is vitally
important.
People with businesses / business interests / farms
Rachel Reeves budget in 2024 introduced some significant
changes to Inheritance Tax which will affect these areas, some significantly.
People with shares in private Ltd companies, interests in
partnerships and ‘sole traders’ may have certain reliefs against Inheritance
Tax for their business plus any personal assets used by the business. It is
vitally important to consider what happens on death and who might take over or
run the business, and who to pass it to. A Trust might be needed. Large values
of business holdings might also affect the availability of main residence
nil-rate bands. Again, advice is vitally important.
There are many other situations where Inheritance Tax
will influence the decisions and how a person’s Will and Estate Planning needs
to be constructed/considered.