Welcome to our comprehensive guide on Inheritance Tax (IHT), designed to provide you with a clear understanding of what IHT is, how it works, and the various considerations and strategies you might employ to manage its impact. At DLS Solicitors, we are committed to offering professional and practical advice to help you navigate the complexities of inheritance planning.
Understanding Inheritance Tax (IHT)
Inheritance Tax is a tax on the estate (the property, money, and possessions) of someone who has passed away. How much IHT needs to be paid can vary significantly depending on the value of the estate and how it is left to the beneficiaries. In the UK, there are specific thresholds and regulations that determine how much, if any, IHT is due.
The Basics of IHT
The threshold for IHT is currently set at £325,000 (known as the ‘nil rate band’). Estates valued under this amount are not subject to IHT. For estates valued over this amount, the portion above the threshold is usually taxed at 40%. However, this rate may vary under certain circumstances, such as if you leave 10% or more of the estate to charity, in which case a reduced rate of 36% may apply.
Main Residence Nil-Rate Band (RNRB)
In addition to the standard nil-rate band, there is a Main Residence Nil-Rate Band (RNRB) which may increase the threshold if you leave your home to your direct descendants. This is designed to make it easier to pass on the family home without incurring IHT.
Who Needs to Pay IHT?
Typically, it is the responsibility of the executor of the will or the administrator of the estate to manage the IHT process. This involves valuing the estate, determining the applicable IHT rate, and ensuring that the tax is paid to HM Revenue & Customs (HMRC).
How to Pay IHT
IHT is usually paid from funds within the estate or from money raised by selling the estate’s assets. It is crucial to pay any IHT due within 6 months of the person’s death to avoid interest charges. In some cases, it may be possible to pay IHT in instalments over a period of time, particularly if the estate includes assets that are not easily sold.
Planning for Inheritance Tax
Effective estate planning can significantly reduce the IHT liability, ensuring that your loved ones are maximally benefited. There are several strategies for mitigating IHT, including:
- Gifting assets during your lifetime
- Setting up trusts
- Taking out life insurance policies written in trust
- Leaving a portion of your estate to charity
Each of these strategies has its considerations and should be carefully planned with professional advice.
Seeking Professional Advice
IHT planning can be complex, and the rules can change. At DLS Solicitors, we highly recommend seeking professional advice to explore the most effective strategies for your situation. Our experienced team can guide you through the process, providing tailored advice to ensure your estate is as tax-efficient as possible.
Contact Us
For more detailed information on Inheritance Tax planning or to discuss your personal circumstances, please contact us. Our team is here to help you with all aspects of your estate planning needs.
