What Is Inheritance Tax (IHT)?

What Is Inheritance Tax (IHT)?
What Is Inheritance Tax (IHT)?

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.

by DLS Solicitors
12th July 2024
DLS Solicitors

Our team of professionals are based in Alderley Edge, Cheshire. We offer clear, specialist legal advice in all matters relating to Family Law, Wills, Trusts, Probate, Lasting Power of Attorney and Court of Protection.

All author posts
Related Posts
  • The Benefits Of Joint Custody For Children: A Comprehensive Guide
    The Benefits Of Joint Custody For Children: A Comprehensive Guide

    Joint custody, also known as shared custody or co-parenting, is a type of custody arrangement where both parents share responsibility for the care and upbringing of their children after a separation or divorce. This arrangement allows children to have ongoing relationships with both parents, providing them with stability and support during a difficult time. Benefits

  • The Impact of Child Abduction on Families: Stories of Heartbreak and Resilience
    The Impact of Child Abduction on Families: Stories of Heartbreak and Resilience

    Child abduction is a devastating crime that not only affects the child who is taken but also their entire family. The impact of child abduction on families is profound and long-lasting, causing immense heartbreak and trauma. However, despite the pain and suffering that comes with such a heinous act, many families show incredible resilience and

  • dols safeguards
    What are the Deprivation of Liberty Safeguards (DoLS)?

    Discover what the Deprivation of Liberty Safeguards (DoLS) entail and how they protect individuals' rights. Learn about the criteria for applying for DoLS authorisations, the roles of Local Authorities and the Court of Protection, and how to challenge decisions under the DoLS scheme.

  • Can I Challenge An Executor’s Decisions?
    Can I Challenge An Executor’s Decisions?

    Welcome to our comprehensive guide on challenging an executor’s decisions. As experienced solicitors, we understand the complexities involved in the administration of estates and the role of executors. It’s not uncommon for disputes to arise during this emotional time, particularly regarding the decisions made by the executor. This guide aims to provide clarity on when