Inheritance Tax (IHT) can be a significant expense for families transferring wealth to the next generation. But with careful tax planning and by considering your options, you can reduce the tax burden on your family.

When is IHT due?

When someone passes away, their estate may be subject to IHT if it exceeds the tax-free threshold of £325,000 (currently frozen until April 2028), this is called your nil rate band.

If the residence nil band applies this can increase the tax-free threshold by £175,000 to £500,000.

The value of your estate includes various assets such as property, investments, and savings.

If the value of the estate surpasses the nil rate bands, the IHT rate of 40 per cent will be applied to the excess amount.

If you are married or in a civil partnership and your partner passes away, any unused IHT allowances can be passed to you.

If you suspect that your estate will be subject to IHT, it’s essential to understand the costs involved and explore ways to plan ahead and minimise the impact of these costs.

The Residence Nil-Rate Band explained

Firstly, you must have lived in the property at some point. Additionally, the property must be left to a direct descendant, such as a child, grandchild, stepchild, adopted child, or foster child.

If you leave your entire estate to your spouse, you may not make use of your own nil-rate band. Instead, your spouse’s tax-free allowance will double to £650,000.

Similarly, if the residence nil rate band is not used, your spouse’s allowance will be increased to £350,000 – allowing a total tax-free allowance of £1 million.

If the value of your estate exceeds £2 million, the additional allowance will taper, the allowance decreases by £1 for every £2 that your estate exceeds £2 million.

We understand that the value of your estate and ensuring it is passed down to your loved ones is of the utmost importance. We are here to guide you through the process and answer any questions you may have.

How to plan for IHT

One of the most critical considerations in succession planning is timing. It’s essential to plan well in advance, as this will give you time to make the most of any available tax reliefs and exemptions.

At Rotherham Taylor, we can provide ongoing IHT advice and identify any available tax reliefs, to take the weight off your shoulders.

If you need advice on IHT or probate-related matters, contact us today.