Inheritance tax (IHT) is payable on death or at certain stages during lifetime. For the purposes of this article we will look at the IHT charge payable on death which relates to the deceased’s estate. On death, the executors will calculate the value of the estate and as well as including the value of any assets i.e. property or monies in bank accounts, they are also required to account for any gifts made within 7 years of the deceased’s death.
If the value of the estate exceeds the nil rate band (NRB) and residence nil rate band (RNRB), the rate of IHT payable is 40%.
On the subject of the NRB and RNRB, each person has a NRB available to them. The current value of the NRB is £325,000 so if the estate exceeds this value, IHT will become payable unless other allowances are available. If the assets fall below the NRB however, no IHT will be payable. It is important for us to add here that the NRB can be reduced by any gifts and transfers made during lifetime.
The RNRB will only be available where a person leaves a “qualifying residential interest” to direct lineal descendants. For a property to be a qualifying residential interest it must form part of their estate at death and must have been used by the deceased as a residence at some point during their period of ownership. It cannot be applied to a property that was bought as a buy-to-let for example.
“Direct lineal descendants” includes children, grandchildren and so on down the line. It also includes spouses and civil partners of the descendants, step-children, adopted children, foster children and children the deceased was the appointed guardian of.
The current value of the RNRB is £175,000 which is capped at the value of the qualifying residential interest.
The NRB has remained at £325,000 since 2009/2010 tax year. The value of the RNRB however, was due to increase in line with inflation based on the Consumer Prices Index but earlier this year, the Chancellor announced that both the NRB and RNRB will remain as they are until April 2026.
Steps to Mitigate IHT
Please get in touch with Finsso Estate Planning to discuss more on steps & implement to mitigate IHT.
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