Each estate in the UK has a threshold which is inheritance tax free called a Nil Rate Band (NRB). The current threshold is £325,000. Any amount above the threshold will be taxed 40% i.e. if your estate had a net value of £350,000 then £25,000 would be taxed at 40% i.e. £10,000 inheritance tax would be payable. There are exemptions such as spouse exemption i.e. you can leave an infinite amount of wealth to your spouse or civil partner inheritance tax free, the same applies to registered charities. If you leave more than 10% of your estate to charities; the inheritance tax band falls to 36%.
Recently the government introduced the Residential Nil Rate Band (RNRB) which allows an estate to claim RNRB when a residential property the deceased has resided in whilst being the registered owner of that property and passed that property to their liner decedent i.e. child, grandchild etc (not sibling or parents). RNRB can also be claimed if a property is sold during a life time if certain conditions are met. The current RNRB is £150,000 and this will increase to £175,000 in April 2020
Both, the NRB and RNRB can be transferred across estates of married couples (civil partners) i.e. if on the first death all the estate is left to the surviving spouse, on the second death; the estate can claim two NRBs (£650,000 tax free) and two RNRB (£300,000 or £350,000 in death after 2020).
However, please note that the RNRB is not fully available to every estate i.e. if your estate is over £2,000,000 different rules apply, and/or if your residence is valued less than the RNRB, and/or if you own two residential properties etc. There are other principles which apply to claiming the RNRB and it is advisable to seek professional advice for the most tax efficient way in which to use it; especially those who have been widowed and since remarried.
Different rules apply to non-domiciled deceased’s estate, spouse of non-domiciled deceased and domiciled deceased and non-domiciled spouse.
Gifting during a lifetime is a way of reducing your estate’s inheritance tax liability
General gifts which fall out of your estate are:-
Annual allowance of £3,000 per person per year (or £6,000 if you fail to gift in the prior tax year).
One-off gifts include:-
£5,000 to children when they marry, £2,500 to grandchildren and £1,000 to any unrelated person getting married.
£250.00 each to any one person i.e. £250.00 to each of your grandchildren.
Normal birthday and religious occasion monetary gift.
Potentially Exempt Gifts/Transfers (PETs)
You are permitted to gift up to your inheritance tax threshold allowance (currently £325,000) without incurring inheritance tax liability so long as you outlive the date of that gift by 7 years.
If you die within 7 years of the PET then that gift/transfer is valued within your estate for inheritance tax purposes but the gift/transfer itself will still be valid i.e. it will still belong to the receiver of that gift/transfer. Your estate will be assessed for the inheritance tax.
Valuating PET is complicated and it is advisable to obtain legal advice on the implication of making a PET. (PETs)
Please contact a member of our experienced team to talk through your questions and queries.