Inheritance Tax – no longer just for the wealthy

In recent years, the number of Britons affected by Inheritance Tax (IHT) has risen significantly, while rules surrounding the tax have grown increasingly complex.

Over the last ten years, the Inheritance Tax nil rate band – or ‘threshold’ – above which IHT is due has risen by 14 per cent, while the average house price has soared during that same period.

According to HM Revenue & Customs (HMRC), IHT receipts hit a record high of £4.72bn in the 2015/16 financial year, while separate studies have suggested that the number of UK estates liable to pay the tax will rise by a further 15 per cent by the end of this year.

The current IHT threshold sits at £325,000 – above which the tax is charged at a rate of 40 per cent of the estate’s value.

HMRC has said that the £325,000 nil rate band will remain frozen until at least 2019.

However, 6 April 2017 has given way to the introduction of the new additional residence nil rate band (RNRB) – which can have significant tax benefits in situations when a family home is left to children, grandchildren or certain other ‘qualifying beneficiaries’. This can include stepchildren and foster children.

The RNRB can be claimed by all those who:

  • Pass away after 6 April 2017.
  • Leave their home to ‘qualifying beneficiaries’ in their Will.
  • Leave behind an estate valued at less than a new ‘upper limit’ (initially set at £2m with a view to rise accordingly in line with inflation from April 2021). The relief is withdrawn at a rate of £1 for every £2 for estates over £2m – therefore there is not relief if the estate is over £2.2 million.

The new rules are complex, therefore it is highly important to seek specialist advice to ensure that you maximise the amount you are able to leave your family free of Inheritance Tax. To find out how the experts at Moore Thompson can help you, please contact us.

Posted in Tax News.