Will I pay inheritance tax?

Our Services

One of the most important matters to consider when making your Will is if there is any opportunity to mitigate inheritance tax, and quite often with inheritance tax planning, the earlier you seek advice, the more options will be available to you.

What are the current inheritance tax rules?

The current position is that when you die, the value of your estate over the current tax exemption (known as the Nil Rate Band) is assessed for inheritance tax at 40%. In cases where an estate is passing directly to a spouse or civil partner, the value of your estate will not be assessed for inheritance tax as gifts to spouses and civil partners are automatically free of inheritance tax.

On estates which are not passing to a spouse or civil partner, the first £325,000 of your estate is free of inheritance tax and any balance over this sum is taxed at 40%. If you die and leave everything to your spouse or civil partner, even though your estate will be free of inheritance tax, you do not lose your tax-free exemption. Instead, your spouse or civil partner will also inherit your tax-free exemption, which can then be applied on their death. This doubles up the available allowance and means that a married couple or registered civil partnership can pass on £650,000 tax free before any inheritance tax is payable.

What is the residence nil-rate band?

In addition to the Nil Rate Band, in April 2017 an additional tax-free allowance was brought into effect, so that people who own property which passes on to children or grandchildren can qualify for an additional tax-free allowance. This is known as a Residence Nil Rate Band.

The current Residence Nil Rate Band is £175,000 and as with the tax-free allowance mentioned above, this is also transferable between spouses. This means that on the second death in a marriage or civil partnership, there is a potential total tax-free exemption of £1million.

As with all tax-free exemptions, there are certain conditions which must be met for your estate to qualify for the additional allowance. This relief is only available if the property is passing to direct descendants, which mean children, grandchildren, stepchildren, adopted children or foster children. If you do not have any children or grandchildren, you will not qualify for this additional allowance. In addition, it must be the main residence which refers to the family home which is passed on.

Another factor to bear in mind is that those with estates which exceed £2million, will have the available tax-free exemption tapered to reduce the available Residence Nil Rate Band by £1 for every £2 the estate exceeds this sum.

What other options are available to reduce inheritance tax?

It is not only the use of the available tax-free exemptions mentioned above which can reduce inheritance tax, there are also a number of other options available such as utilising your annual exemptions in making cash gifts and gifts which are made out of your surplus income. When making gifts, again it is important to seek professional advice to ensure that these will achieve the outcome which you are look for.

If you would like to discuss inheritance tax, or if you would like to have your current Will reviewed to ensure that it does qualify for all the available tax free Exemptions, please do not hesitate to contact us on 01279 295047 or by email and we will be very happy to help you. You can also use our inheritance tax calculator for an estimate of the amount of inheritance tax that will be paid on your estate.

Make an enquiry

If you would like to arrange an appointment please contact our friendly team today on 01279 295047

or by completing our online enquiry form.