Inheritance tax paid by British families has hit a record high of £5.1bn in the year to May 2017.
This is largely caused by the fiscal drag of continuing house price inflation compared to the frozen inheritance tax nil rate band of £325,000.
The new residence nil rate band which came into effect on 6 April this year may start to reduce the inheritance tax take figures, but the complexity of the new rules and the relatively narrow band of people for whom it will be of benefit mean it is unlikely to have a dramatic effect.
Inheritance Tax by the numbers
- Inheritance tax is charged at 40% on the portion of a deceased person’s estate over and above the nil rate band of £325,000.
- Anything left to a spouse is exempt (providing they are UK domiciled).
- If the deceased person is a widow or widower, they may also have inherited their former spouse’s nil rate band if they didn’t use it, meaning they can have £650,000 of exemption.
- The residence nil rate band adds another £100,000 of exemption per person – but with a complex set of conditions surrounding it. This allowance increases by £25,000 per year until it reaches £175,000 per person in April 2020.
- You can also inherit your deceased spouse’s residence nil rate band if they didn’t use it.
- Adding all those nil rate and residence nil rate bands together means that couples can get up to £1million of inheritance tax exemption if they plan properly.
Inheritance tax is complex and thinking about what you want to happen after your death can be daunting. However, if you don’t want your family to be contributing to the Government’s tax receipts, you need to face it. Our job is to make that as clear and painless as possible for you, helping you understand the options available to you and making sure that your estate and pension planning are aligned.
We draw on our strong blend of tax and financial planning expertise, coupled with our personal touch, to help our clients build the right solution for their families.
For more information, talk to us and we’d be more than happy to help.
Jane Parry – Tax Partner