The importance of time limits when making an Inheritance Act claim
There are strict time limits you must adhere to when pursuing an Inheritance Act claim.Read more
Everyone in the UK is entitled to a £325k tax-free allowance, which is applied to the estate upon your death; although this allowance reduces if you make certain gifts during your lifetime.
Additionally, married couples (or those in a civil partnership) who leave their estates to each other, are able to benefit from two nil rate bands, increasing the tax-free allowance total to £650k.
Estates with a value that falls within the respective allowances are exempt from paying tax; however, where the total value exceeds this amount, the excess sum will be taxed at 40%.
In addition to the standard tax-free allowance, some people may also benefit from the residential nil rate band. This may be applicable if you pass your family home on to your children or grandchildren upon your death, providing a further tax-free allowance of £150k per person, increasing to £175k per person in April 2020.
The rules surrounding residential nil rate band are complicated and many estates fail to fulfil the certain criteria, which include:
If you meet the conditions, less or even no tax is payable following your death, or that of a loved one. A married couple’s estate could potentially benefit from a £1m tax-free allowance before any inheritance tax is due, which is quite a considerable saving.
In circumstances where your whole estate exceeds £2m, the tax-free allowance is tapered down by £1 for every £2 over this amount. Therefore, if its total value is in excess of £2.2m, it may be worth considering making gifts during your lifetime to reduce your estate’s value to below the £2m threshold.
While increased tax-free allowances are always welcome, the residential nil rate band is not an available option for everyone. For example, you will not be able to take full advantage of the scheme if you do not have qualifying ‘descendants’ or your property is of lower value.
It is, therefore, important to plan ahead and seek expert advice. As well as explaining the various other requirements that need to be met to claim the allowance, we can also help you get your affairs in order and review your will.
If you would like any further information about inheritance tax and how it may affect you, or about wills, probate and trusts, please contact us on 01332 226 162 or complete the form below.
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