Current inheritance tax rules & implications, December 2013
Inheritance tax is the tax that your estate may have to pay following your death. If the value of your estate exceeds the inheritance tax threshold applicable at the date of your death, currently £325,000, your estate will be liable to pay Inheritance tax.
You can, if you are married or in a civil partnership double this threshold to £650,000 (currently) by making a Mirror Will or couples Will.
Last Will and Testament and Inheritance Tax Nil Rate Band
The first £325,000 of someone’s estate is tax free and known as the ‘nil rate band’. Married couples using a Mirror or Couples Will can increase their combined nil rate band to as much as £650,000, when the surviving spouse dies.
Inheritance tax is payable at a rate of 40%, on the amount over the Inheritance tax threshold, or at 36%, if the estate qualifies for a reduced rate, as a result of a charitable donation.
Married Couples can also transfer money and assets to each other during their lifetime or when they die, without becoming eligible to pay Inheritance Tax, as long as the recipient’s permanent home is in the UK.
If you leave everything you own to your surviving spouse in this way, your entire estate will be exempt from Inheritance Tax and your Nil Rate Band will remain unused, becoming available for use by your surviving spouse when he or she dies, in addition to his or her own Nil Rate Band. Remarriage will not alter this.
The above also applies to civil partnerships.
The relatively high level of property prices has the potential to put many people within the inheritance tax bracket and it is an issue that you must consider when planning the terms of your Will, particularly as the family home is frequently the only sizeable asset.
You should also take into account any substantial gifts that you have made during your lifetime: if they were made within a few years prior to your death, they may attract Inheritance tax .
Further exemptions and reliefs
In addition to the Nil Rate Band availability, the following exemptions and reliefs are available to reduce or remove Inheritance Tax liability:
- Charitable gifts: no Inheritance Tax is payable
- Gifts to political parties: where there is a gift made to a political party, no Inheritance Tax is payable if it has at least one Member of Parliament in office
- Gifts for the maintenance of a family member: if your Will provides for the reasonable maintenance of a child under 18 (over 18 in full-time education or training or was otherwise dependant on you), the gift is exempt from IHT
- There are also reliefs available if you owned a business, farm, woodland or National Heritage property, on the date of your death.