It's never an easy subject to contemplate, but without taking adequate steps you could be liable to leave behind a 40% Inheritance Tax bill when you die. What's more your loved ones could be forced to pay it before they can inherit what you want them to have.
How it works
Under the current rules if, when you pass away, the value of your estate is above £325,000 (if you're single or divorced), or £650,000 (if you're married, in a civil partnership or widowed*), everything you own above this threshold may be liable for a 40% IHT bill.
These Inheritance Tax thresholds might seem like a lot, but when you add up the value of your estate – which includes your property, car, jewellery, savings and investments – you might be surprised by how much it's worth.
New main residence nil rate band will benefit some, but not everyone
In the July 2015 Budget, the Government announced that an additional ‘main residence nil rate band' is to be gradually phased in from April 2017, on top of your existing threshold. This will mean that fewer families in the UK could be affected by Inheritance Tax. However, there is a chance that you could still be liable.
- In time, the main residence nil rate band will be worth £175,000 per person, but it won't take full effect until April 2020.
- Although at that point your threshold could be up to £1 million if you are married, in a civil partnership or widowed, single or divorced people's overall allowance will be only half that amount (£500,000).
- The new allowance only applies if you pass on your family home to your direct descendants (namely a child or grandchild).
- You can only include your main residence in this allowance; any additional property, such as buy to let, would form part of your regular estate and fall under the £325,000/£650,000 thresholds.
If you're unsure whether you will be able to benefit from the new allowance, it's best to call us to find out.
Take Steps Today- Inheritance Tax Planning Service
SFS offers an Inheritance Tax planning service, where we can help you to determine if you have, or in future may have, a liability – before researching the market and offering recommendations on ways you could reduce or, in some cases even, eliminate your potential burden, suited to your individual circumstances.
* If you're widowed, your threshold is currently up to £650,000 depending on how much allowance was used when your partner passed away.