IHT is a tax on the money or assets that a person leaves behind
when they die. It can also apply to gifts that are made within 7 years of
death.
Each individual has a nil rate band (NRB) of £325,000, with any
excess being subject to IHT on death at 40%. In addition to this, there is also
a residence nil rate band (RNRB) of £175,000, which is available when
residential property is left to direct descendants.
Transfers of assets between married couples and civil partners in
lifetime or on death are exempt from IHT. On the death of an individual, any
unused part of their NRB or RNRB can be transferred to the estate of their
surviving spouse or civil partner.
An increase to property prices have meant that a growing number of
people now have to pay the tax. According to the Land Registry of England and
Wales, the average house price in the UK is around £296,000. This would
therefore use a large proportion of the available nil rate bands.
There are, however, a number of ways in which you can mitigate or
plan for the potential IHT liability on your estate:
Make a tax-efficient will
Establish trust arrangements
Utilise exemptions by lifetime gifts
Take out life cover
Make IHT efficient investments that qualify for IHT relief.
Making personal pension contributions, as these are exempt from
your estate on death
Leaving money to charities*
Spending your money
*should you leave 10% of your net estate to charity,
this reduces any IHT liability to 36%.
Clearly, this is an area of financial planning that needs careful
consideration, as other issues, such as the availability of capital for
potential care fees will need to be factored in.
For comprehensive inheritance tax planning advice, it is highly
recommended that you speak to your accountant and independent financial
adviser.
