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Inheritance Tax (IHT) is a tax potentially payable on your estate when you pass away. There is normally no tax payable if:
- the value of your estate is below the IHT nil rate band – currently £325,000; or
- you leave everything over the nil rate band to your spouse or civil partner, a charity, or other exempt organisation.
If neither of these applies, your estate is taxed at 40% on anything above the nil rate band, or at 36% if you leave at least 10% of your estate’s net value to charity in your Will.
IHT nil rate band
The current IHT nil rate band of £325,000 has not changed since 6th April 2009, and before last week’s autumn statement, it was already set to continue at this level until April 2026. Now, the Chancellor has announced that it will remain frozen until at least April 2028, by which time its benefit will have been eroded by almost two decades of inflation. This further delay forms part of the Chancellor’s broader policy of fiscal drag, allowing inflation to push more people into paying tax or into higher tax brackets. Indeed, it’s calculated that if the nil rate band had increased over time in line with the Consumer Prices Index, by April 2023, it should have been around £465,000.
Residence nil rate band
The residence nil rate band (RNRB) of £175,000 is also now frozen until April 2028. The RNRB is an allowance introduced in April 2017 to reduce the amount of IHT payable in respect of a person’s main residence. The allowance is available in addition to the general IHT nil rate band, but to qualify, you must leave the property to direct descendants such as children (which includes adopted, foster or step-children) or grandchildren. The RNRB is tapered down for larger estates, but the rules are complex.
To discuss mitigating your exposure to Inheritance Tax, contact us on 01225 755656, or complete the Contact Form at the foot of this page.