With the Government collecting £5.2billion in Inheritance Tax last year, it is well worth considering whether your estate is liable for Inheritance Tax.

Although the record amount of Inheritance Tax paid in 2017/18 is nothing to be sniffed at, with only one in twenty estates actually paying Inheritance Tax there are ways of ensuring that your estate is not liable for Inheritance Tax, but in order to do so we must consider when Inheritance Tax is payable.

Inheritance Tax is payable upon death, where an estate exceeds the Nil Rate Band, at a rate of 40%. So, what is 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.

The Nil Rate Band for 2018/19 (this is considered every April) is set at £325,000 per person, this may not seem like a lot considering the increase in property prices. However, in addition to the Nil Rate Band, if you are passing property to a direct descendant (a child, grandchild, great-grandchildren, step-children, adopted children or foster children) then you are entitled to claim the Residential Nil Rate Band. The Residential Nil Rate Band is currently set at £125,000.

If you are married and the estate is passed to the surviving spouse upon the death of the first spouse, then no Inheritance Tax is payable. Don’t worry, the deceased’s Nil Rate Band and Residential Nil Rate Band is not lost…

Upon the death of the surviving spouse, the Nil Rate Band and Residential Nil Rate Band can be combined to allow for the estate to pass to a direct descendant without attracting Inheritance Tax up to a value of £900,000 (in the 2018/19 tax year) by taking advantage of both spouses Nil Rate Band and Residential Nil Rate Band.

With the Government committed to increasing the Residential Nil Rate Band by £25,000 to April 2020, by the tax year 2020/21, an estate that includes a property and that is taking advantage of both spouses Nil Rate Band and Residential Nil Rate Band will be able to gift £1million to a direct descendant without attracting any Inheritance Tax.

If your estate is valued at over £2million then your use of the Residential Nil Rate Band attracts conditions and so if your estate is valued at over £2million then we will need to consider your exposure carefully to limit this where possible.

If you would like to have a free chat about your Inheritance Tax liability and planning for the future, please contact us on  info@TotalLegacyCare.co.uk or 01727 865 121