Inheritance Tax (IHT) may not be on your mind, but when you have considerable savings and property to pass on, it’s a good idea to add IHT to your tax planning checklist.
In the past two years, HMRC has generated more revenue from Inheritance Tax than ever before, £5.3bn to be exact. This is thanks to rising house prices and that the tax authority has been closing down various loopholes. It may come as good news though for homeowners that there has been a boost to the residence nil-rate band, and Tax Agility is here to explain what that exactly means.
What’s the nil-rate band?
The Inheritance Tax threshold, also known as the nil-rate band, is frozen at £325,000 per person until 2021. This means no tax needs to be paid on assets (excluding property) passed to your descendants up to this value. Above this threshold, your estate will incur a tax of 40%.
An additional IHT allowance is in place for people who own property, and this is called the residence nil-rate band. Set at £100,000 per person in the past tax year, the threshold has been raised to £125,000 this month and will continue to rise by £25,000 every year until 2020/2021, to take into account rising property values. This means that your descendants will only need to pay tax on the inherited property if it is worth more than £125,000.
Married couples and civil partnerships
Your IHT allowance gets added to your partner’s allowance if you die before them. This means married couples and civil partners can pass on assets worth £650,000 completely tax-free. The same concept of doubling applies to the residence nil-rate band, giving couples a considerable tax break.
Inheritance Tax accountants
You can expect further changes to Inheritance Tax throughout the year as the Office for Tax Simplification has been urged to review the complex rules around Inheritance Tax on gifts. Tax Agility is keeping a close eye on the changes, and we’re happy to discuss what the new Inheritance Tax threshold could mean for you, your property, and those you wish to inherit it.
No one wants to leave a hefty IHT bill as part of their legacy. To speak with a professional accountant to discuss ways you can maximise the value of your estate with Inheritance Tax planning, contact us today on 020 8108 0090 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.