- Inheritance Tax is payable at 40% upon death where an estate exceeds the Nil Rate Band (the Nil Rate Band is a personal allowance, that each individual is able to gift, upon death, without attracting any Inheritance Tax (for 2021/22 this is £325,000 per person)).
For more information on the Nil Rate Band and Residential Nil Rate Band, check out our article – Inheritance Tax: Record £5.2billion paid by UK in 2017/18
It is therefore important to know what your estate is, what assets form part of your estate and how your estate is valued. You can then plan accordingly to try and reduce your Inheritance Tax liability where possible and prepare for such an Inheritance tax bill if necessary.
First things first…What is your estate?
Your estate includes all of your assets, whether owned outright, solely or jointly. The combined total of this will then be used to calculate your Inheritance Tax liability.
However, any liabilities or debts that you leave will be deducted from the value of your assets before any Inheritance Tax is calculated. Any debts or liabilities owing at the time of your death are payable by your estate and so this value is reduced from the total value of your assets.
What assets are included when valuing your estate?
When calculating the value of your estate, all of your assets are valued at the date of death, and these assets will include:
– any asset which you can dispose of (sell, transfer or gift) in your Will, or which will pass by the Rules of Intestacy if you do not have a Will in place. This includes:
o Property, Land, Buildings and any Interest in Property, Land, Buildings
including your home and any other property, land or buildings that you own or own with anyone else (including those that have a mortgage on them). This also includes any properties, land or buildings that you have an interest in.
o Personal Items
including all household items and any items or possessions owned by you such as jewellery, clothing, glassware, silverware, china, porcelain, electrical goods, any works of art, vehicles, caravans, boats, planes and any collections (stamps/coins etc.).
o Bank and Building Society Accounts / Savings
the money in all banks, buildings societies, saving accounts and ISAs as well as any accrued interest (whether or not credited to the account yet) at the date of death.
o Premium Bonds / NS&I Products
savings with National Savings and Investments which may take a similar form to a bank or building society or may well be investments or premium bonds.
o Pensions
Where pension payments continue after death they may be taken into account when valuing assets upon death, although these may well be exempt where the payments are made to a surviving spouse or civil partner.
Any lump sum payment that is made from the pension, upon death, may be liable to Inheritance Tax and form part of your estate but this will depend on the pension scheme rules and nominations.
o Life Insurance Policies
payments from Life Insurance policies may be included within your assets unless they are written into trust for your beneficiaries. However, this will depend on the Life Insurance policy and terms of such policies.
o Shares and Investments
including all stocks, shares and investments held either solely or jointly by you upon your death.
o Employment Benefits
you may be entitled to outstanding payments from your employer if you die whilst still in employment, and if so, this will form part of your estate. However, if you have been paid in advance there may be a debt due from the estate to your employer. You may also be due share incentives, as part of your employment package, and this should also be considered.
o State Benefits
your estate may be due some state benefits from the date of last receipt to the date of death. The Department for Work and Pensions should be written to in order to obtain this information.
o Other Items
§ Lifetime Gifts that have been made within the seven years prior to your death that have reduced the value of your estate may need to be included.
§ Credit / Refunds including those that are due from utilities that have been paid in advance.
– any assets that are passed to others regardless of your Will or the Rules of Intestacy
o this will include any property that passes because it was held by you as a joint tenant and therefore automatically passes to the other joint tenant/s upon your death.
– any assets that are included by way of legislation or statutory provisions
o Trusts that you have a qualifying interest in (Interest in Possession, Immediate Post-Death Interest, Disabled Person’s Interest or Transitional Serial Interest).
o Gifts with a Reservation of Benefit including any gift that is given by you but that you retained an interest in or that you continued to benefit from (such as a property that you have transferred but continue to reside in).
o Gifts of an asset, or where you have helped to buy an asset and received a benefit from that gift or asset during your lifetime
We said earlier that your estate value is reduced by any debts and liabilities, so let’s take a look at what that could include:
- Funeral Expenses
- Outstanding utilities accounts such as gas, electric, water, landline, mobile phone, internet/broadband, TV, insurances etc.
- Council Tax
- Credit accounts such as credit cards, catalogues, standing orders, direct debits etc.
- Overdrafts and Loans
- TV Licence
- Mortgage or Rent
- Miscellaneous accounts such as a milkman, gardener, newsagent or similar.
If you would like to have a free chat about your Inheritance Tax liability and planning for the future, please contact us on
or 01727 865 121
