I want to leave my home to my family: will they have to pay inheritance tax and can they avoid it?
PUBLISHED: 10:36 10 September 2018 | UPDATED: 10:36 10 September 2018
It's often called the cruellest tax of all. But exactly how much inheritance tax do you have to pay, when and can you avoid it?
Alisdair Liddle, partner and head of private client at Spire Solicitors LLP, gives the legal lowdown.
Inheritance tax is the tax paid on assets left when someone dies and is often called the cruellest tax of all. Your estate includes your property, savings and any other assets you pass on after debts and funeral expenses have been paid. If the value of your estate is above the nil rate band of £325,000 then the part of your estate that is above the threshold will be liable for tax at the rate of 40 per cent.
What are the inheritance tax rules?
Couples: If you are married or have a civil partner, he or she can inherit your entire estate without facing an inheritance tax bill.
Gifts: Within a certain amount, you can gift a sum of money during your lifetime, tax-free without it counting towards your estate.
A gift can be anything of value such as money, property or any other possessions. Generally, as long as a gift is made to an individual more than seven years before your death, you won’t pay tax on it.
How can I reduce the amount of tax paid?
There are gifts that are exempt from inheritance tax which are:
Gifts to your spouse or civil partner
Gifts of up to a value of £3,000 in each tax year. Any unused amount can be carried over once to the next tax year
Wedding or civil partnership gifts worth up to £5,000 to a child, £2,500 to a grandchild or great grandchild and £1,000 to any other individual
Individual gifts up to £250
Gifts to charities and some other organisations, including museums and amateur sports clubs
Do I pay inheritance tax on a property?
In April 2017 the Residence Nil Rate Band came into effect. This is an inheritance tax free allowance that can be set against a residence within your estate when you die. The increase to the nil-rate band is happening gradually between April 2017 and April 2020 when it will be £175,000.
Inheritance tax property thresholds:
Tax Year Nil-rate band Residence Nil-rate band Total for individuals Total for couples
2017- 18 £325,000 £100,000 £425,000 £850,000
2018- 19 £325,000 £125,000 £450,000 £900,000
2019- 20 £325,000 £150,000 £475,000 £950,000
2020- 21 £325,000 £175,000 £500,000 £1,000,000
By 2020 you will be able to pass on £500,000 (£325,000 + £175,000) tax free to your direct descendants.
As married couples and civil partners can inherit any unused allowance from their spouse, a total of £1million can be passed on tax free.
If you’re concerned about inheritance tax and hope to mitigate it through gifting, asset transfer or the new residential property allowances, it’s important to check the position regularly.
Getting it right, and reviewing any existing will, is key to making sure reliefs are maximised.
If you would like to discuss any points in this article further, please contact Spire Solicitors LLP on 01603 677077 for all your legal needs.
Spire Solicitors have sponsored this article.