Inheritance Tax

By Carlin Peton

Here at Ackroyd Legal we understand that Inheritance tax (IHT) may be an uncomfortable subject.

At present, there are three occasions upon which IHT may be charged:

  • Upon death, where the deceased’s estate is transferred to beneficiaries via their will or the rules of intestacy;
  • Where a gift is made, and the person making the gift dies within 7 years;
  • Gifts made to a company or a trust.

As it stands, everyone has a Nil Rate Band of £325,000.00 in relation to IHT. This means that, so long as the cumulative total of the above occasions are below £325,000, no IHT will be payable. If a gift, or transfer at death is passed to a ‘direct descendent’, the deceased’s Nil Rate Band will increase by a further £100,000.

Currently, no IHT is payable on any amount passed to a surviving spouse or civil partner. Additionally, married couples or registered civil partners can utilise their spouse’s unused Nil Rate Band.

An additional £200,000, rising to £350,000 by 2020/21, for married couples or registered civil partnerships, can also be left by property owners if the satisfactory conditions are met. Subsequently, except for certain charitable donations, everything is taxed at 40%

These are the three simple steps that Ackroyd Legal believes are worth considering:

  1. Regular gifts by an individual made from income are potentially exempt. However, to qualify for exemption these gifts should not impede the donor’s standard of living;
  2. Pension benefits are exempt from IHT, however, if they are passed to your survivor they could form part of their estate, so this is something that requires onsideration. If you can live comfortably on your pension, the pension income itself can be extended to benefit your dependants.
  3. You can give away up to £3,000 tax-free each year, using annual and small gift exemptions. You can also make an unlimited number of smaller gifts of up to £250 to those who have not received any gifts from the £3,000 exemption.
  4. Normally there is no IHT to pay if either:
    • The value of your estate is below the £325,000 threshold;
    • You leave everything to your spouse or civil partner, a charity or a community amateur sports club.

If you would like further information regarding this, please feel free to contact us on 020 3058 3363 or via email to our enquiries page.