In 1986, the former Chancellor of the Exchequer, Roy Jenkins, famously said: “Inheritance Tax is, broadly speaking, a voluntary levy paid by those who distrust their Heirs more than they dislike the Inland Revenue.”There is also the famous judgment of Lord Tomlin in the Duke of Westminster case in 1936, when he said:
“…every man is entitled, if he can, to order his affairs so that the tax attaching under the appropriate acts is less than it otherwise would be…”Inheritance Tax TodayFor a single person, Inheritance Tax is charged at 40% of everything over £325,000. For a married couple, Inheritance Tax is charged at 40% of everything over £650,000 (Nil Rate Band 2010/2015).ExampleMr. & Mrs. Smith have a family home worth £600,000. They also have two other rental properties worth £200,000 each, and savings and investments worth a total of £250,000. This gives a total net Estate value of £1,250,000. On 2nd death, the Estate will be able to claim two Nil Rate Bands of £325,000, each giving a tax-free allowance of £650,000. The remaining Estate of £600,000 will be taxed at 40%; so on 2nd death, the Smith Estate will pay £240,000 in tax.The New £1 Million Nil Rate BandAs of the Budget July 2015, the new extra Nil Rate Band has arrived and was scaled in over the next few years.
General description of the measureThis measure introduces an additional Nil Rate Band when a residence is passed on death to a direct descendant.
This will be:
• £100,000 in 2017 to 2018
• £125,000 in 2018 to 2019
• £150,000 in 2019 to 2020
• £175,000 in 2020 to 2021
It will then increase in line with the Consumer Prices Index (CPI) from 2021 to 2022 onwards. Any unused Nil Rate Band will be able to be transferred to a surviving spouse or civil partner.
The additional Nil Rate Band will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the additional Nil Rate Band, are passed on death to direct descendants.There will be a tapered withdrawal of the additional Nil Rate Band for estates with a net value of more than £2 million. This will be at a withdrawal rate of £1 for every £2 over this threshold. The Main Residence Nil Rate Band will be transferable where the second spouse or civil partner of a couple dies on or after 6 April 2017, irrespective of when the first of the couple died.
The qualifying residential interest will be limited to one residential property, but personal representatives will be able to nominate which residential property should qualify, if there is more than one in the estate. A property which was never a residence of the deceased, such as a buy-to-let property, will not qualify. A direct descendant will be a child (including a step-child, adopted child or foster child) of the deceased and their lineal descendants. A claim will have to be made on the death of a person’s surviving spouse or civil partner to transfer any unused proportion of the additional Nil Rate Band unused by the person on their death, in the same way that the existing Nil Rate Band can be transferred.Tax planning is a specialist and complex area, requiring someone with expertise and knowledge in Tax matters to look at each situation carefully.
Some of the easiest and most common solutions to Inheritance Tax are:
Make a Will
Be generous sooner rather than later
Use your personal allowances
Keep it in the family (Discretionary Trust)
Regular gifts from income.One size doesn’t fit all. Everyone is different, and, with Inheritance Tax, we would need to meet you on a one-to-one basis as every solution is tailored to specific needs.