Inheritance tax (IHT) is a tax on the estate (the property, money and possessions) of someone who has died. There is usually no IHT to pay if the value of the estate is below £325,000 (known as the 'nil rate band') or anything above this is left to a spouse, civil partner or charity. The standard IHT rate is 40% which is charged on the part of the estate that is above the threshold. There are a number of reliefs and exemptions, which might apply to reduce the amount of IHT payable. One of these is the 'main residence nil rate band' which was introduced in April 2017. This is an extra property allowance, which means that people can leave their home to their family tax free.
The rules relating to the main residence nil rate band are complex and are about to change from April 2020. From this date the IHT break relating to a person's home will rise to £175,000 meaning that including the standard nil rate band, a couple can leave a property worth £1m free of IHT.
However, it is important to ensure that the property is left to a specified relative to ensure that this tax break is available. This means that people should be thinking about effective tax planning before they die and should ensure that their will is properly drafted to take advantage of these rules.
It is the duty of the person/s dealing with the administration of the estate (the Personal Representatives) to pay the IHT. They carry a personal liability so it is important to get the IHT calculation right and Personal Representatives should consider taking appropriate advice.
To discuss this or any other wills and probate matter, contact us.