Potential Inheritance Tax axe by Chancellor Javid
- AuthorLeah Woodnott
Chancellor Sajid Javid certainly hit the news last week after he speculated that getting rid of Inheritance Tax was on his mind.
What is Inheritance Tax?
Inheritance Tax is a tax incurred on a deceased’s estate. An estate is made up of all of a person’s assets, such as property, bank accounts, investments etc. apart from any liabilities such as utility bills etc.
Certain estates can be exempt from paying Inheritance Tax but there are strict requirements to comply with.
At present, a person has a Nil Rate Band Allowance of £325,000. If a net estate is below this threshold, there will be no Inheritance Tax to pay. Inheritance Tax will not be payable if a person leaves all of their estate above the Nil Rate Band Allowance to their spouse, civil partner or charity.
If someone passes away leaving a spouse or civil partner, on the second person’s death, their executors may be able to claim some or all of their former spouse’s Transferable Nil Rate Band Allowance. This Transferable Nil Rate Band Allowance is up to £325,000. The amount that can be claimed depends on when the first spouse died and how much of their estate was left to the surviving spouse or civil partner.
If someone leaves their property to their children, and passes way in the 2019/2020 tax year, their executors may be able to claim a Residence Nil Rate Band allowance, which is an additional £150,000 that passes tax free.
Ways to reduce Inheritance Tax
Currently, if an estate is above the tax threshold, Inheritance Tax is charged at 40% on the part of the estate that is above the threshold.
Several ways to reduce a potential Inheritance Tax bill are as follows:-
- Leaving 10% of your net estate to charity means you pay Inheritance Tax at a reduced rate of 36%.
- Making lifetime gifts to your loved ones.
- Creating a trust in your will.
- Assigning pensions or life assurance policies to specific people so they do not form part of your taxable estate.
- Changing the way you own your property.
- Leaving your property to your children may mean that you can claim the additional Residence Nil Rate Band allowance.
What happens if Inheritance Tax is scrapped?
Although taxable estates only make up 5% of all deaths, it has been reported that Inheritance Tax will raise £5.3 billion for the Treasury for this financial year. To scrap Inheritance Tax will surely put a dent in the Treasury’s budget.
It is often quoted that there are two certainties in life – death and taxes. As it stands, we get taxed left, right and centre, through our work, pensions and investments. Chancellor Javid said that he understands the arguments against the death taxes. We get taxed all throughout our lives, so why should we also get taxed on our passing?
If Inheritance Tax does get scrapped then watch this space. The Treasury will have to find funds elsewhere to replenish their income!
If you would like Inheritance Tax planning advice then please contact our Inheritance Tax specialists. I am available for a free, no obligation 15 minute chat on 01206 217609 or alternatively please email me on email@example.com.