A total of £2bn was raked in by the government in the form of Inheritance Tax (IHT) between April and June – £0.2bn more than at this time last year according to HM Revenue & Customs (HMRC).
The latest HMRC data in July states the June 23 figure is the highest monthly total on record & points to recent interest rate rises plus the subsequent need for charges on overdue tax bills.
What is IHT?
Inheritance Tax is a tax on the Estate of someone who’s died. There’s normally no IHT to pay if either the value of your Estate is less than £325k or you leave everything above £325k to your spouse, civil partner, a charity or a community amateur sports club.
If you give away your home to your children (including adopted, foster or stepchildren) or grandchildren your threshold can increase to £500k, something known as the Residence Nil Rate Band.
If you’re married or in a civil partnership and you leave all your estate to your spouse/civil partner, then on the death of the second, the surviving spouse can use the unused threshold of the first to die to increase their threshold. This means that you can have up to £650,000 before any IHT is due.
What’s the big deal with IHT?
The standard IHT rate is 40% & it’s only charged on the part of your Estate that’s above the threshold.
However, there are several reliefs & exemptions to reduce IHT. The Estate can pay IHT at a reduced rate of 36% on some assets if you leave 10% or more of the ‘net value’ to charity in your Will. (The net value is the estate’s total value minus any debts.)
Some gifts you give, while you’re alive, may be taxed after your death. Depending on when you gave the gift, ‘taper relief’ might mean the IHT charged on the gift is less than 40%.
Other reliefs, such as Business Relief, allow some assets to be passed on free of Inheritance Tax or with a reduced bill.
What can you do?
It's important to start planning your Estate as early as possible, particularly if you think it will be subject to IHT.
Even if you leave it late, it's important to consult a Probate Solicitor as there are complex rules around IHT, particularly the reliefs, & Residence Nil Rate Band will not be applicable if the HMRC criteria are not adhered to.
To arrange a discussion about IHT, please get in touch with Rick Barrow on 01625 523988 or mail@jbgass.com