With the most recent figures from HM Revenue & Customs (HMRC) indicating that the Treasury collected a record £5.3 billion in Inheritance Tax (IHT) last year, IHT planning is becoming increasingly important as the years go by.
Recent reports suggest that an ever-rising number of British families are finding themselves liable to pay the tax, due to increasing wealth and consistent property price growth.
In the UK, individuals and families who wish to pass on their legacy tax efficiently need to seek specialist advice if they want to avoid being hit with hefty IHT bills.
IHT is levied at a rate of 40 per cent of an estate’s total value on all estates valued at £325,000 or more. This £325,000 threshold – also known as the ‘nil rate band’ – has remained frozen at this amount for several years.
Fortunately, there are several options families and individuals can explore in order to mitigate their IHT liability.
The RNRB
One option worth investigating is the additional residence nil rate band (RNRB). First introduced in April 2017, this is an additional tax-free threshold families can tap into if they plan on leaving a residential property to their direct lineal descendants in their Wills.
As of 6 April 2018, individuals can pass on an additional £125,000 in property value to children, grandchildren, step children and foster children completely tax-free by using this allowance.
As married couples or those in a civil partnership can combine their allowances, this means that couples can effectively pass on £900,000 worth of property completely tax-free if they seek appropriate advice to incorporate the RNRB into their Wills.
Charitable legacies
There are many other tax-saving opportunities available. For example, individuals can reduce the rate at which they will incur IHT on the total value of their estate by passing a portion of it to a charity when they die – and this might be a better option depending on circumstances and intentions.
By leaving 10 per cent of their estate to a charity, individuals will pay IHT at a rate of just 36 per cent as opposed to 40 per cent, reducing their overall IHT bill significantly.
Speak to our expert tax team today for IHT planning advice tailored to suit your unique circumstances.
