Legal News | 21.04.22
IHT… Not quite as easy as 1, 2, 3?
Inheritance tax or “IHT” is often called Britain’s most hated tax and, given its complexity, it’s easy to understand why. Here is a (very) brief summary of how IHT is calculated on death .
IHT is charged on the value of a person’s estate, that is the value of their assets (for example, property, bank accounts) less their liabilities (for example, funeral expenses, credit card bills). However, for IHT purposes, a person’s estate also includes the value of any gifts they made in the seven years before they died (reduced by any available exemptions and reliefs ).
A person’s estate is then reduced by any exemptions and reliefs available on death. For example, where the terms of a person’s Will or intestacy provide that assets pass to a surviving spouse/civil partner or to a registered charity or where a person’s assets include qualifying business or agricultural property.
For IHT purposes, every person is entitled to a nil rate band (fixed at £325,000 until 5 April 2026). They may also be entitled to an additional residence nil rate band (fixed at £175,000 until 5 April 2026) if their estate includes a residential property interest that passes to their direct descendants. Both nil rate bands are transferrable between spouses/civil partners.
To the extent that a person’s estate, reduced by any available exemptions and reliefs, exceeds their available nil rate band and residence nil rate band, IHT is charged at a rate of 40%. Where at least 10% of a person’s qualifying estate passes to registered charities, IHT may be charged at a reduced rate of 36%.
If you would like more information on inheritance tax, please contact your usual Wansbroughs contact or e-mail the private client team at email@example.com.