Inheritance tax (IHT) has come a long way since its introduction in 1894. Back then, it was considered something only wealthy families needed to worry about. Fast forward to today, and the reality is quite different – the average IHT bill for bereaved families in England now sits at around £62,000. This means inheritance tax has become a concern for ordinary families, not just the wealthy.
Dealing with tax matters while grieving is incredibly difficult. That’s why our team of Exeter accountants, at Sidaways is here to guide you through understanding IHT and finding ways to keep your tax bill as low as legally possible.
The IHT threshold has remained unchanged at £325,000 since 2009, meaning that there has been an increasing number of families who are liable to pay inheritance tax, making inheritance tax a cost to most, and the Government has confirmed it will stay frozen until at least 2028. Read our blog for more information about how Labour’s Budget has affected inheritance tax thresholds and Business & Agricultural Property Relief going forward.
With house prices rising by approximately 86% over the past 14 years, along with growth in investments and savings, even relatively modest estates can now fall into the IHT bracket.
What counts towards your estate? Your estate value includes your property, money, and possessions. IHT is charged on anything above the £325,000 ‘nil-rate band’ – if your estate falls below this, no tax is due.
Over the last 14 years, there has been no increase in the threshold, whilst the increase in house prices (approximately 86%), investments, and savings over that same 14-year period means that even a modest estate could now be subject to IHT.
Like with everything, inheritance tax does have a small silver lining, marriage.
If you’re married and your partner passes away, all assets of the estate transfer to you. Then on your death, the estate will be divided into two lots of £325,000, making a total of £650,000 tax limit.
Additionally, in 2017, the resident nil rate band (RNRB) was introduced. Bringing in an exemption of £175,000, which has also been frozen until 2028. As with the IHT nil rate band, if married, on passing of the second partner two lots of the £175k should be available to the estate.
For this to come into account, the family home should be inherited by children or other direct descendants. Applying the above, at best, the estate will have £1,000,000 in exemptions available to it assuming it meets all the conditions.
At Sidaways, we have exceptional knowledge of and experience with helping families with inheritance tax. (We may be biassed) but with good planning, the amount of inheritance tax you may need to pay on your loved ones’ estate could be mitigated. If you’ve inherited an asset and are thinking of selling it, read our blog for more information about how Capital Gains Tax applies to inherited assets.
For example, the amount of inheritance tax applied to the estate is normally 40% of the overall value. So, if your estate is worth £450,000 you would have £180,000 to pay in inheritance tax. However, our team of highly experienced accountants could help you reduce this payment to 36%, if you leave 10% or more of the estate to charity.
However, when doing this, please note:
The above said, our recommendation is you need to know if there is potential for your estate to have an IHT liability. Then planning to mitigate this is a good idea and something that our team can help you with.
But why should you trust us with your inheritance tax? Well:
Inheritance tax is a significant consideration in estate planning that can impact the legacy you leave behind for your loved ones. Understanding its implications and employing strategic methods to mitigate its impact can help preserve your wealth and ensure a smoother transition of assets to the next generation.
If you would like to discuss this further, contact our Exeter chartered accountants team today, to book your free one-hour consultation.
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Dan Routcliffe
Email: dan@sidaways.co.uk
Tel: 01392 360008
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