Understanding Inheritance Tax

Inheritance Tax (IHT) is an increasingly pressing issue for families across the UK. With property values rising and tax thresholds frozen, more estates are falling within the scope of IHT. If you haven’t reviewed your Will recently, now is the time to ensure your plans reflect the latest rules and take full advantage of the available allowances.

What Is Inheritance Tax?

IHT is a tax on a deceased person’s estate. The standard rate is 40% on the estate portion, which exceeds the tax-free thresholds.

Key IHT Allowances for Married Couples

Understanding and maximising the available allowances is vital to minimise your IHT liability:

1. The Nil Rate Band (NRB):
2. Each individual has a tax-free allowance of £325,000. Anything above this amount is taxed at 40%.
3. The Residence Nil Rate Band (RNRB):
4. An additional allowance of £175,000 applies if you pass on your home (or a share of it) to your direct descendants, such as children or grandchildren.
5. For married couples or civil partners, these allowances are transferable. If the first partner leaves their estate to the surviving spouse (which is exempt from IHT), any unused allowances can be transferred. Together, a couple could pass on up to £1 million tax-free, provided the estate includes a qualifying residence left to direct descendants.

Why Reviewing Your Will Is Essential

Even if you already have a Will, it’s vital to review it regularly to ensure it remains effective and reflects your current circumstances. Here’s why:

• Changes in Your Family Circumstances:
• Births, marriages, divorces, or deaths can all affect your Will. Keeping it up-to-date ensures your intentions are clear and legally enforceable.
• Frozen Tax Thresholds:
• The government has frozen the NRB and RNRB thresholds until at least 2030. As property prices and wealth increase, more estates will be subject to IHT.
• Ensuring the RNRB Applies:
• If you’ve downsized, sold your home, or moved into care, you may still qualify for the RNRB. However, specific planning is required to ensure this allowance is preserved.
• Avoiding Unnecessary Tax Liabilities:
• Reviewing your Will helps ensure you’re fully utilising the available allowances and protecting your estate from unnecessary IHT.

Act Now to Protect Your Estate

Failing to review your Will could leave your loved ones with a higher tax bill than necessary. By acting now, you can ensure:

• Your Will reflects your current circumstances and wishes.
• You’re taking full advantage of allowances like the RNRB.
• Your family is not burdened with unnecessary financial strain.

Book Your Free Initial Review Today

Whether you’re reviewing an existing Will from another firm or creating one for the first time, our team is here to help. We’ll ensure your estate plan is effective and aligned with your intentions. If your estate exceeds the IHT threshold, we can connect you with expert tax barristers to explore your options.

Get in Touch

Disclaimer
The information provided in this article is for general informational purposes only and does not constitute legal, financial, or professional advice. No responsibility is accepted for any action taken or not taken based on the content of this article. Readers should seek appropriate professional advice tailored to their circumstances before making decisions. April King Legal will not be held liable for any loss or damage arising from reliance on this information.