The inheritance tax nil-rate band, also known as the inheritance tax threshold, is currently £325,000, or £650,000 for a married couple. If your estate is worth more than this amount, you will be liable to pay inheritance tax, with the part of the estate above the nil-rate band being taxed at a rate of 40 per cent.
Many people will not have to worry about paying this charge, as their estates will be worth less than £325,000, but with rising house prices, more and more of us are getting caught up in the inheritance tax net. In fact, official data shows that the average UK house price in August 2022 was £296,000, which is £36,000 higher than it was a year earlier.
So while you may have regarded inheritance tax as something that only the wealthiest people in society have to think about, which is certainly not the case. Thankfully, there are steps you can take to reduce your inheritance tax liability, so you can leave more of your hard-earned wealth to your loved ones when you die.
For example, you can gift up to £3,000 a year, without it being added to the value of your estate for inheritance tax purposes. Furthermore, assets left to a spouse or civil partner in your will are exempt from inheritance tax. You may also qualify for the residence nil-rate band before any inheritance tax is due, which depends on you passing your main residence to your children or grandchildren.
The residence nil-rate band threshold goes up every year in line with inflation, based on the Consumer Price Index, and means you can protect your family home from inheritance tax if you leave your family home to a direct descendant (including adopted, foster and stepchildren).
It is currently the lower of the value of your property or £175,000, but you should be aware that the residence nil rate band will gradually reduce for an estate worth more than £2 million, even if you bequeath a home to your descendants. It reduces by £1 for every £2 that the estate is worth more than the £2 million taper threshold.
We would recommend that the first thing you should do to reduce your inheritance tax liability is to speak to a professional, regulated financial adviser like ourselves, who have experience and expertise in this field and will be able to talk you through the various options that are open to you.
If you have any questions about Inheritance Tax or would like some guidance on your own situation then please get in touch with us.
