How to increase your Inheritance Tax Allowance to £1million
We work hard for most of our lives to provide an inheritance for our loved ones and so wanting to increase our Inheritance Tax Allowance (reducing the amount paid in Inheritance Tax) is a considerable concern for many.
Inheritance Tax is payable at 40% upon death where an estate exceeds the Inheritance Tax Allowance, this is legally termed the Nil Rate Band (a personal allowance, that each individual is able to gift, upon death, without attracting any Inheritance Tax – for 2020/21 this is £325,000 per person).
So, how do we increase £325,000 to £1million?
So, as we now know, each person is entitled to pass £325,000 (2020/21) to their beneficiaries without paying any Inheritance Tax AND…
Where you are passing your residential property to a direct descendent (children, grandchildren, great-grandchildren, step-children, adopted children or foster children), you can claim an additional allowance, called the RESIDENTIAL NIL RATE BAND, giving you an extra £175,000 (2020/21) to pass to your beneficiaries (if they are direct descendants), without paying any Inheritance Tax.
Thus increasing your Inheritance Tax Allowance to £500,000.
So, where does the other £500,000 come from?
Your NIL RATE BAND (£325,000) and RESIDENTIAL NIL RATE BAND (£175,000) is transferable between spouses and civil partners.
This means that if your partner passes before you and leaves their entire estate to you, then upon your death you will have the benefit of their Nil Rate Band and, if they had a Residential Property in their Estate, their Residential Nil Rate Band.
Thus, increasing your Inheritance Tax Allowance to £1million.
It is worth bearing in mind that if your estate is worth more than £2million then you lose the right to claim all of the Residential Nil Rate Band; for every £2 over the £2million valuation, you will lose £1 of the Residential Nil Rate Band.
If you would like to have a free chat about your Inheritance Tax liability and planning for the future, please contact us on 01727 865121 or drop us an email Info@TotalLegacyCare.co.uk
Leah Waller
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