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Nobody wants to pay more inheritance tax than they need to and there are plenty of vehicles for reducing tax liability with careful planning. Despite this, inheritance tax revenues hit a record £5.2 billion in the 2017/18 tax year. Clearly, too many people are not aware of the various allowances and exemptions available to them.
The role of an estate planning lawyer is to advise you on the amount of inheritance tax you will pay if you do nothing, and how this could be mitigated. Often people assume that there is no need to consider inheritance tax since their estate falls well below the inheritance tax threshold. However, the value of estates can grow very quickly with soaring house prices, pension and insurance payouts so a discussion with an expert and a regular review is always advisable.
There are a whole range of solutions to consider and an experienced specialist should always be consulted.
Inheritance tax allowances - a brief overview
The basic allowance for each person is £325,000 so in other words, if you pass on £325,000 of assets, you won't pay any inheritance tax. In addition to that, there is a newer allowance called the Residence Nil Rate Band (RNRB) that allows you to pass on your family home to a 'direct descendent' free from inheritance tax, up to a certain limit. There is also a spousal exemption so property passed to your husband, wife or civil partner is free from inheritance tax.
Where your husband, wife or civil partner leaves everything to you on their death, the result is that they haven't used any of their inheritance tax allowances and this can be claimed by your estate on your death. The increase is always a percentage, so if the first spouse dies using none of their allowances, the second spouse's estate will benefit from a 100% uplift to their own allowances on their death, even if the rate of inheritance tax has increased.
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