Inheritance Tax Planning
Inheritance tax has become an issue for many estates over the years as house prices have continued to rise. Currently, in 2020 each individual has a lifetime allowance of £325,000. If an individual has assets in excess of £325,000 including cash, savings, investments and property then inheritance tax will be payable on death of 40% of the amount over the £325,000 threshold. If you are married this limit is £650,000 before inheritance tax is payable with the surviving spouse able to transfer any unused allowance from their deceased spouse.
You may also qualify for the new residence nil rate band which is currently £175,000 each. To qualify you need to own a residential home, and it needs to be left to a direct descendant, ie a son, daughter, or grandchildren. It is only available on residential property that you live in. Where an estate is valued more than £2million the RNRB will be progressively reduced by £1 for every £2that the value of the estate exceeds the threshold. If you do qualify for the RNRB you will have a total lifetime allowance of £500.000, or £1Million if you are married before your estate will pay inheritance tax.
Also, remember that each individual has a yearly allowance of £3000 that can be gifted each year tax-free. This yearly allowance is often forgotten but can be a good way of reducing possible IHT.
Lifetime planning is about creating solutions to reduce potential IHT issues on death. Solutions such as gifting can be used to reduce your IHT liability during your lifetime.