Understanding inheritance tax and the way it could affect your estate when you die is key if you are to get the most out of financial planning for your family’s future.
With the value of property ever increasing, people may be affected without realising so it’s important to understand how the figures stack up.
Getting to grip with the numbers
The first £325,000 value of your estate is called the ‘Nil Rate Band’ because, although it is taxable to Inheritance Tax (IHT), it is taxed at 0%. If you’re married or in a civil partnership and your estate is valued at less than £325,000, any unused threshold can be passed to your partner when you die. This could result in their tax threshold being as high as £650,000.
Currently, IHT is payable on death at this rate on the value of your net assets over £325,000.
The number of years you must survive if you give away large amounts of money or valuable assets while you are alive, otherwise HMRC will tax you for IHT as if you still owned them when you die.
Everyone has an ‘Annual Exemption’ for IHT of this amount every tax year.
If your children get married, you can give them or their new spouse a lump sum up to this value completely free of IHT.
New for the 2017/2018 tax year is a ‘family home allowance’ called the main residence nil rate band, eventually worth £175,000 per person, which will be added to the existing £325,000 tax-free threshold. This will be worth £100,000 in 2017-18, £125,000 in 2018-19, £150,000 in 2019-20, and £175,000 in 2020-21. (For estates wort over £2 million this additional nil rate band will be tapered away by £1 for every £2 that the net estate value exceeds £2m)
It means people can pass on assets worth up to £500,000, including a family home, without paying any inheritance tax. For married couples and civil partners, that would give a total of £1million to pass on. To qualify,
you must own a property on or after April 2016 and it must be left to someone who is a direct descendant, such as a child or grandchild.
If your grandchildren get married, you can give them or their new spouse a lump sum up to this value completely free of inheritance tax.
To review your Inheritance Tax planning, visit www.robertnicholas.co.uk or contact 01952 820155