The rules on inheritance tax have changed in recent years, so that the majority of estates in England now do not pay inheritance tax, as they are below the threshold. However, this will depend on a number of factors including the value of your assets and who is inheriting your estate.
The starting point is that each person has a tax threshold of £325,000 and no inheritance tax will be payable on your death on assets below that amount.
If you are married, then if on death you leave everything to your spouse then there would be no inheritance tax, regardless of the value of your estate at your death (assuming there are no issues with either of you being foreign.)
If at your death your spouse has died before you and you inherited their estate when they died, then you would have your own inheritance tax threshold of £325,000 available and also your spouse’s £325,000 allowance meaning you would have a tax threshold of £650,000 available.
In addition, there is a possible exemption called the ‘residential nil rate band.’ This applies if on your death you are leaving a house that you have lived in, or the sale proceeds, to descendants such as children, or grandchildren. This potentially gives you an additional allowance of £175,000 for each of your estate and for your spouse’s estate if they have died before you, so long as the total value of your estate is below £2,000,000.
This means that the inheritance tax threshold is now up to £500,000 per person or £1,000,000 for the survivor of a married couple.
You should beware however as the value of most gifts made in the seven years before death would be deducted from your tax free allowance, and so would reduce the amount that can be left free of tax.
Clients often ask us if they can simply put their assets into their children’s name to avoid inheritance tax. The answer is that for an asset not to be taxed at your death you need to have genuinely given it away. For example, if you make a cash gift to your children and survive more than seven years then this would not be part of your estate for inheritance tax. However, if you put your house into your children’s names and still live in it or receive a rental income from it, then HMRC will consider that you have not in fact given it away, and the gift will fail for avoiding inheritance tax.
There are some exemptions that apply in addition to the seven-year gifting rule and please do get in touch with us if you would like to review your inheritance tax position. There are also inheritance tax efficient investments that may be of interest to you that Nockolds Wealth can advise you on, if you would like investment advice.
The most popular way of reducing inheritance tax payable at your death is of course to enjoy spending it during your lifetime!
For more information and to find out how we can help you, please contact us on 0345 646 0406 or fill in our online enquiry form and a member of our Team will be in touch.