Inheritance Tax (“IHT”) is a form of tax which is payable on an individual’s estate when they die. IHT can also however become due during a person’s lifetime if they gift in excess of their Nil Rate Band away during their life.
As the law currently stands, everybody has £325,000 (“the Nil Rate Band”) by way of a tax free band which means if our estate falls within this allowance no Inheritance Tax will be paid out of the estate. When an individual marries or enters into a Civil Partnership the surviving spouse will inherit the percentage of the unused Nil Rate Band (“NRB”) from the deceased spouse’s estate thus potentially doubling their own NRB to £650,000.
However if a person’s estate falls outside the NRB a 40% charge is incurred on the estate which falls outside the NRB and this level has been sent until April 2018.
In cases where a % of an estate is left to charity there are occasions where the 40% tax charge can be reduced to 36%
There are further issues that affect IHT such as gifting. Some gifts are exempt from IHT and there is the introduction of the new Residential Nil Rate Band which is due for Royal Assent in December 2015 and which should give an increased allowance to homeowners from 2017. Further information is included on this website concerning the Residential Nil Rate Band.
2015/2016 Tax Bands
|Band £||Rate %|
|0 – 5,000||0*|
|31,786 – 150,000||40***|
|*||Only applicable to savings income. The rate is not available if taxable non-savings income exceeds £5,000 (£2,880)|
|**||Except dividends (10%)|
|***||Except dividends (32.5%)|
|****||Except dividends (37.5%)|
Other income taxed first, then savings income and finally dividends.
|Death rate||Lifetime rate||Chargeable transfers
|Nil||Nil||0 – £325,000|
|*||Potentially increased for surviving spouses or civil partners who die on or after 9th October 2007|
|Annual exemption||£3,000||Marriage||– Parent||£5,000|
|Small gifts||£250||– Grandparent||£2,500|
Reduced charge on gifts within seven years of death
|Years before death||0-3||3-4||4-5||5-6||6-7|
|% of death charge||100||80||60||40||20|
Capital Gains Tax
|*||For higher and additional taxpayers|
The first £10 million of qualifying gains are charged at 10%. Gains in excess of the limit are charged at the rates detailed above.
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Wills and Estate Planning Partner
Wills and Estate Planning Solicitor
Wills and Estate Planning Legal Executive