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24th September 2018
Inheritance Tax (IHT) was first introduced in 1986 and is a tax levied on a person’s estate when they die. This includes property, money and personal possessions.
There is no IHT to pay if the estate is valued below the Nil Rate Band (NRB) which is currently set at £325,000, or if the deceased leaves everything to their spouse, civil partner or to charities.
If you’ve given money away, used any trust arrangements or have business assets, then these will have an impact on the calculations as there are different rules to be followed and ultimately complicate an otherwise simple tax calculation.
UK resident individuals do have a number of allowances and exemptions to utilise which can go towards legitimately reducing their estate value, but few people are fully using them.
HMRC figures state that in 2015/16 tax year, just 4.2% of estates were liable to IHT and this represented a slight increase on the previous year’s figures, but in 2017/18 IHT receipts exceeded £5 billion, representing an increase of 8% over the previous tax year. There is an expectation that this will continue to rise.
An individual’s UK main residence continues to make up the majority of the value of their estate, but not everyone benefits from the newly introduced Residence Nil Rate Band. We covered this subject last year which you can revisit here. The average price of a house in the UK as at January 2018* was £225,621. Regionally, the figures are broken down as follows:
The tax you’ll pay is 40% on the amount over £325,000 (less any reliefs and exemptions), meaning those with residential property in London are most likely to be affected, with those in the South East, East of England and those in the South West not far behind. A large number of people could be caught out and will end up sharing a significant chunk of their wealth with the UK Government.
Seeking professional advice and early planning is essential to review the options available to you if you wish to mitigate any IHT which will become due on your estate.
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