Inheritance Tax Definition
Inheritance taxation is the tax on the state of a person who has passed away. This includes their property, money, and possessions. You may see it abbreviated as IHT.
How Much Will I Owe?
If your estate is valued below the NRB of £325,000 OR you give everything exceeding said threshold to your civil partner or spouse, you will NOT be taxed.
You will also not be taxed if you leave amounts above said limit to a beneficiary that is exempt, for example, a charity.
Should the estate’s value is more than the Nil Rate Band’s, you may be responsible for the 40% tax rate.
For instance, if your estate is valued at £625,000, the tax assessed would be on £300,000. Then the tax might be £120,000, which is 40% of £300,000.
This NRB rate is fixed until the year 2021. However, your rate could be different if you are widowed or the living civil partner.
Also, couples do have the ability to transfer unused NRB at the time of the first partner death to their survivor.
As a result, the NRB amount available can go up to £650.000. The term for this is the Transferable Nil Rate band (TNRB).
Residence Nil Rate Band
This is sometimes called “home allowance” and is abbreviated RNRB. You qualify by giving some or all of your home to your kids/grandkids. It includes adopted kids, foster kids, and step-kids, but not siblings, nieces, or nephews.
The allowance for the RNRB is currently set at £125,000. However, it’ll rise in increments to reach about £175,000 in 2020 and 2021, and accordingly with the Consumer Price Index.
Valuing Your Estate
Here’s how to determine your estate’s worth:
- Make a list of all assets and determine the value at the death date
- Subtract liabilities or debts
Be sure to hire an accountant to help with this information and keep a good track of it. HMRC can request to see your paperwork two decades after the IHT tax is settled.
Assets are things like money in the bank, jewelry, cars, insurance money payouts, assets jointly owned, and property/land.
You must also include gifts, including assets or cash if they were given away in the 7 years before the individual who gifted them died. Be sure to include gifts given away BEFORE this time if the individual who died kept on benefitting from said gift.
Any liabilities or debts lower the value of the departed’s chargeable estate- items like credit card debt, mortgages, funerary expenses, and other bills count.
Costs incurred after the death, like solicitor’s or probate fees, cannot be subtracted from the value of the estate for IHT purposes.
Inheritance tax is paid by the executor of the will or the executive of the estate. IHT can be paid from estate funds or funds raised from asset sales.
Most often, it is paid via the Direct Payment System- essentially, money from the deceased’s bank account can be utilized to pay the tax.
We hope this information is helpful. For answers pertaining to your case, be sure to speak with your solicitor.