Without IHT planning, your beneficiaries could be faced with a large tax bill. With some forward planning you can help ensure that the people you want to benefit from your estate actually do benefit.
Historically, Inheritance Tax planning used to be an activity confined to the rich. However, growing affluence means that this is no longer the case. Even families and individuals with a relatively moderate level of wealth should consider planning ahead to ensure that their assets are passed on to their loved ones as efficiently as possible.
Property price increases have also dragged many families into the Inheritance Tax bracket. Effective estate planning is about getting the right balance between maintaining access to your money when you need it and saving tax.
Inheritance Tax (IHT) is a tax on the estate, including all property, possessions and money. There is normally no tax to be paid if:
- The value of your estate is below the Nill Rate Band (NRB) of £325,000, or
- You leave everything above the threshold to your spouse or civil partner, or
- You leave everything above the threshold to an exempt beneficiary such as a charity
If the value of your estate is above the NRB, then the part of your estate above the threshold might be liable for tax at the rate of 40%.
So, if your estate is worth £525,000 and your IHT threshold is £325,000, the tax charged will be on £200,000 (£525,000 – £325,000). The tax would be £80,000 (40% of £200,000).
The NRB is fixed at £325,000 until 2021, but your NRB might be increased if you’re widowed or a surviving civil partner. Couples can transfer any unused NRB when the first person died to the survivor.
This can double the amount of NRB available up to £650.000. This extra transferable element is known as Transferable Nil Rate Band (TNRB).
The Residence Nil Rate Band (RNRB) – also known as the home allowance -has been introduced recently.
The RNRB is on top of the NRB and the TNRB. To be eligible you must pass your home or a share of it to your children or grandchildren. This includes step-children, adopted children, foster children but not nieces, nephews or siblings.
This table shows the increases of the RNRB and the potential combined allowance:
| Tax Year | Resident Nil Rate Band (£) | Nil rate band (£) | Combined allowances |
| 2018/19 | 125,000 | 325,000 | 450,000 |
| 2019/20 | 150,000 | 325,000 | 475,000 |
| 2020/21 | 175,000 | 325,000 | 500,000 |
After 2020/21, the RNIB will rise in line with the Consumer Price Index (CPI).
There is tapered withdrawal of the home allowance if the overall value of your estate exceeds £2 million.
Provided certain conditions are met, the home allowance gives you an additional allowance to be used to reduce any IHT liability against your home.
You may also be able to use any unused RNRB from your spouse or civil partner’s estate if you’re widowed or a surviving civil partner. This can double the amount of RNRB available.
How Finch can help
We recognise that few taxes are quite as emotive – or as politicised – as Inheritance Tax. The structures into which you transfer your assets can have lasting consequences for you and your family. We can help you choose structures and trusts designed to protect your assets and give your family lasting benefits. It is crucial to find out now if you potentially have an Inheritance Tax liability – or could do so in future years. To discuss your situation and the options available to you, please call the team on 01275 867350 or send us a message now. We look forward to hearing from you.