The Recent Budget and Inheritance Tax
- AuthorAlice Rowlands
It has been widely reported that the Chancellor delivered his budget for 2021 to Parliament on 3rd March 2021. Whilst the issue of Inheritance Tax was not covered in great depth, the Chancellor has confirmed that the current thresholds for Inheritance Tax (IHT) will be maintained until April 2026.
The current IHT thresholds available are as follows:
- Each person has an individual allowance of £325,000 called the Nil Rate Band (NRB).
- This allowance is transferrable between spouses and civil partners. Therefore if on the death of the first spouse/civil partner all assets pass to the survivor (or any assets which pass to someone other than the survivor total less value than the NRB), any unused allowance of the first spouse/civil partner will transfer to the survivor, therefore allowing a total of up to £650,000 free of IHT on the death of the surviving spouse/civil partner.
- In addition to the above, there is also a separate allowance called the Residence Nil Rate Band (RNRB). Since April 2020, this allowance is up to £175,000 per person. This allowance is available only where there is a property which was occupied as the main residence of the deceased and that property is passing to lineal descendants (i.e. children, grandchildren etc.). This allowance is also only able to be used against the value of the property used as a main residence and if the property is therefore valued at less that the allowance, some of the allowance will be lost. Additionally, the allowance is only available in full if the estate is worth less than £2 million in total. For estates which exceed this value, the allowance is decreased by £1.00 for every £2.00 that the estate exceed £2 million. The exact provisions of the RNRB can be complex and it is advisable to seek professional advice in respect of its availability.
- The RNRB again is transferrable between spouses or civil partners if unused on the death of the first spouse. This does mean that there is a potential for married couples or civil partners to have the benefit of up to £1 million before IHT is payable.
If after you pass away your estate exceeds the allowances that are available, any amount over those allowances is taxed at a rate of 40%, subject to the availability of any other reliefs.
Inheritance tax can be a complicated subject and it is strongly advised that you seek expert legal advice in respect of any queries that you may have. At JCP Solicitors, we offer a complimentary basic IHT analysis as standard within our costs for the preparation of a Will. This basic analysis can be extremely helpful in allowing you to consider whether any more detailed IHT planning advice is necessary in respect of your estate to help mitigate any liability, which our team of specialist advisors can also assist you with. Whilst you may feel that your estate would not be liable to pay IHT at first glance, there may be aspects of your estate which you had not considered, such as life insurance and pension payments, that could mean your estate is potentially liable to IHT. It is also important you have an accurate understanding of whether the above allowances will be available and your Will is drafted to ensure that your estate enjoys the maximum benefit from these allowances in order to reduce the impact of IHT and preserve more of your hard earned assets for your beneficiaries.
For more information, contact us on 03333 208644 or email firstname.lastname@example.org.