Inheritance Tax
Protecting your assets for the next generation

The number of individuals caught by Inheritance Tax (IHT) is at an all-time high, so it is worth understanding the main exemptions

Marital Status: Transfers between spouses or civil partners made both during life and on death are exempt from IHT.

Nil-Rate Band (NRB): The value of assets that, on death, can be passed to beneficiaries free of inheritance tax. Since 2009 the NRB has been frozen at £325,000. For married couples and civil partnerships, any allowance that remains unused on death can be transferred to the surviving partner, meaning qualifying survivors can pass up to £650,000 to beneficiaries free of IHT.

Main Residence Nil-Rate Band (RNRB): Property price inflation is one of the key reasons IHT is now applicable to more individuals than ever. To help counter this the Government introduced a RNRB in 2017, which provides married couples and civil partners an inheritance tax-free allowance of £1m when combined with their existing NRB. The allowance is tapered away on a 2:1 basis for estates with a value of over £2m.

Annual Exemption: Individuals may make transfer exempt from IHT up to £3,000 in any one tax year with the ability to carry forward the previous year’s allowance for one year if not already utilised.
Small Gifts: Individuals may gift up to £250 to any number of parties (other than an individual in receipt of the annual exemption) in any one tax year.

Normal Expenditure: An often-overlooked exemption, if a transfer is part of a donor’s normal expenditure, is made out of income and doesn’t affect their usual living standard, it will be exempt from IHT. This area of planning can be quite complex so financial guidance should be sought.

Wedding Gifts: Donors can gift £5,000 if parent to either party, £2,500 if grandparent and £1,000 if any other person.

Business Relief (BR): A tax relief provided by the UK Government as an incentive to increase investment in certain types of trading businesses.

Pensions: There is a common misconception that assets left in an individual’s pension will be free from tax when passed to their beneficiaries. Whilst true for IHT, it is important to consider the wider tax implications such as the type of pension and when the proceeds can be passed without the beneficiaries having to pay income tax.

We spend our days helping clients with estate planning and Inheritance Tax.

Contact us or book an initial consultation here at Penn Barn to find out how we can help you.

By Philip Harper  |  June 2023