Inheritance Tax is a 40% tax applied to estates over £325,000.00 ( Nil Rate Band, NRB) upon your death.
For Inheritance Tax purposed your estate includes the following:
- Your savings
- Possessions you own
- Pension Funds
- The value of any gift made during 7 years prior to death (subject to certain exemptions)
From April 2017, the government introduced the first phase of the Residential Nil Rate Band, by 2020 if your property is left to direct descendants you will benefit from an additional £175,000.00 meaning a combined Nil Rate Band of £500,000.00 per person by April 2020.
You may have seen the Newspapers dubbing this the £1 million allowance.
There are a few exemptions to Inheritance Tax
- Spousal exemption – if you leave your whole estate to your husband, wife or civil partner
- If a husband, wife or civil partner doesn’t use all their £325,000.00, then the unused % may be transferred to their surviving spouse/civil partner.
- Gifts to charities are free from Inheritance Tax and if more than 10% of the estate is left to charities then the estate will pay a reduced Inheritance Tax rate of 36%
- Annual gifts up to £3,000.00 are exempt from Inheritance Tax
- Wedding Gifts- depending on who and how much are exempt
- Small Gifts to individuals again depending on how much are exempt