What Inheritance Tax exemptions are there?
- Credit: Getty Images/iStockphoto
I understand that there are two different types of Inheritance Tax exemptions that my family can claim when I die. Can you explain what exemptions are available and if there are any conditions on them, please?
Richard Barker of Smith & Pinching responds:
Planning to mitigate Inheritance Tax (IHT) is something that we discuss with clients on a regular basis and it is important to understand how the exemptions are applied to an estate. I’ll attempt to cover the basics here, but do get advice if you think your estate is likely to have a future IHT liability, as there are several different measures you can adopt to manage it.
Importantly, anything left to a spouse or civil partner (but not a co-habiting partner) is free of IHT on your death. The next major exemption is the Nil Rate Band (NRB). This is the basic amount that can be left to your heirs without incurring IHT. The NRB currently stands at £325,000 per person. It’s worth stressing that if you own assets jointly with someone else, it’s only your share that will be counted when you die. Any unused NRB can be passed on to your spouse or civil partner when you die, giving the second partner to die a combined NRB of £650,000.
In addition to the NRB, there is an additional exemption that can be applied if you leave the value of your home to your children or grandchildren (including stepchildren and adopted or fostered children). This will vary according to the value of your share of the home involved but currently provides an exemption of up to £175,000 per person. This is known as the Residence Nil Rate Band (RNRB) and can also be passed on to a surviving spouse or civil partner, if unused.
However, estates worth more than £2 million are subject to a tapering reduction to the RNRB. In practice, this means that a couple leaving the bulk of their estate to their children could benefit from an IHT exemption of up to £1 million. However, single persons, couples without children and those with large estates will have a lower combined NRB/RNRB.
Any pension benefits you leave to your heirs are normally treated as outside your estate, if you have written the benefits in trust. This is another area where advice can be critical. There are other exemptions available at the time of death such as allowances for gifts to charities. In addition, lifetime giving exemptions allow you to reduce the value of your estate for IHT purposes during your lifetime.
IHT planning is an important part of the advice we give to our clients to build a full picture of how assets will be treated upon death and how to manage future tax liabilities.
- 1 Chance of a bargain as home goes under the hammer for £60,000
- 2 Teen warned jail sentence 'almost inevitable' for cocaine dealing
- 3 Two men in 20s arrested after serious Lowestoft assault
- 4 Artist's impression gives glimpse of how £14.7m Cultural Quarter could look
- 5 Man denies robbing alleged victim of mobile phone
- 6 Lowestoft woman wanted by police on recall to prison
- 7 New hair salon opens up with its very own puppy on the premises
- 8 New Taco Bell restaurant 'will make a real difference to vibrancy' of town
- 9 Retail park nuisance drivers cause misery with 'revving and noisy exhausts'
- 10 Iceland offers over 60s discount on shopping bill every week
Any opinions expressed in this article do not constitute advice.
For more information, please visit www.smith-pinching.co.uk