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Who pays Inheritance Tax ?

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Heather Lally, Associate Solicitor, Estate & Trust Practitioner, and Associate member of Solicitors of the Elderly at FDR Law looks at the question, who pays inheritance tax ?

Most people are aware that if you leave substantial assets to your beneficiaries on your death, that there may be inheritance tax to pay. However, with recent changes regarding owning a residence on your death and who it is left to, the inheritance tax position may not be clear to all.

The basics - Individuals with assets valued at less than £325,000, generally there is no inheritance tax to pay.

If you leave all your assets to your Spouse / Civil Partner, generally there is no inheritance tax to pay.

If you have survived your Spouse / Civil Partner and they left all of their assets to you and had not gifted assets / set up trusts which used up their entire inheritance tax (Nil Rate Band) allowance, a claim can be made to use their allowance also, so up to £650,000 can be claimed.

Now, if your assets comprise your residence and that residence is left to your direct descendants (including adopted, fostered and step-children), providing the property is valued at the Residence Nil Rate Band (currently £125,000 for tax year 2018/2019) or above, this additional allowance can be claimed against inheritance tax.

If your residence was passed to you by your late Spouse / Civil Partner, a claim of up to £250,000 can currently be made (using both persons' allowances). The Residence Nil Rate Band allowance is due to increase to £175,000 by 6 April 2020. At that time, up to £350,000 additional allowances can potentially be claimed by the estate of the surviving Spouse / Civil Partner, if the property is valued at that amount or more at that time.

Inheritance tax is normally charged at 40% over the Nil Rate Band and Residence Nil Rate Band allowances. Further reductions can be claimed for legacies and gifts to charity, if certain business assets or agricultural assets are held at death, along with gifts made from 3 years up to 7 year prior to death. However, estates valued at over £2 million, lose £1 of the Residence Nil Rate Band allowance for every £2 over £2 million.

Inheritance tax can be complex and each person's circumstances are different. If you are unsure as to whether your estate will pay inheritance tax, take advice and let us clarify matters for you and assist in inheritance tax planning options.

For more information on Inheritance Tax, Estates, Wills, Trusts, Powers of Attorney, or Court of Protection matters, contact Heather Lally on 01928 739300 or