Inheritance Tax – FAQs

As Benjamin Franklin famously stated, “In this world, nothing can be certain except death and taxes.” This is a perfect introduction to the world of Inheritance Tax. Our feature explores 5 FAQs giving readers a general grounding in the area.

“So what exactly is inheritance tax? I thought this was just a tax on the rich!”

When someone dies, inheritance tax is paid at the rate of 40% on the estate value exceeding the £325,000 nil rate band. With the average UK house price standing as they are, landlords having additional investment properties could quite likely raise you above the Inheritance Tax threshold of £325,000.

“So what is the nil rate band exactly?”

The first £325,000 of an estate is not taxed. Therefore, if a taxpayer died leaving his daughter behind 2 properties worth £100,000 each, and other assets of £50,000, the total estate would be valued at £250,000. This is below the £325,000 threshold, and therefore no inheritance tax would fall due. If however he also had another property worth £200,000, his total estate would be £450,000 exceeding the £325,000 nil rate band by £125,000. Therefore, £125,000 would be taxed at the rate of 40% meaning that a £50,000 inheritance tax charge would arise.

“So is there anything I can do if part of my nil rate band is unused?”

Yes, in fact, this is quite an effective planning mechanism, in that any unused amounts left over within the nil rate band may be transferred to your husband, wife or civil partner.

“Is there anything I can do to mitigate my Inheritance Tax bill?”

There are plenty of tax planning opportunities out there, such as spousal gifting, trusts, lifetime gifting and this is just to name but a few.

“Are there any pitfalls though in inheritance tax planning?”

Of course; it is a case of making the correct decisions, and ensuring your position is planned to minimise the tax liability. There are many pitfalls, and as a for instance, if you remained resident in a property after gifting it to your loved one, this can trigger an issue known as “reservation of benefit” whereby the property would still form part of the deceased’s estate.

To summarise, Inheritance Tax is something that must be considered. Your family may incur hundreds of thousands of pounds in the event of your death. The worst thing to do is bury your head in the sand!

You may not have thought about Inheritance Tax planning, but in order to protect your wealth and reduce your burden, it is an area that must not be ignored.

For further assistance, please do not hesitate to contact RITA4Rent on freephone 0800 1 22 33 57 for your free initial consultation.