If you are an IHT client at TVR Accountants, it’s important to recognize that an individual’s will and the legal process associated with it might be overwhelming, not to mention the IHT process. Our goal is to make it easier for you to understand the rules, the various thresholds, and the allowances out there to assist you in saving some of your hard earned cash on tax. In this guide, we’ve covered everything you should know about Inheritance Tax.

What is Inheritance Tax?

The common understanding of the IHT is that it is an equivalent of UK tax on the transfer of wealth from one generation to the other upon the death of an individual. This consists of the property, cash, bank balances and certain articles which they owned at the time of their death and also gifts which were made within 7 years of their preacing. The basic IHT rate is 40% and the residual that is over the nil band of £325;000 is charged at this rate. For instance, in an estate where the value is £500,000, then the amount is £175,000, which is subject to taxation.

Who Pays Inheritance Tax?

It is the duty of the Estate to pay Inheritance Tax. The executor of the Will (or the person managing the estate if there is no Will) must:

• Value the estate.
• Calculate any IHT owed.

Pay to the HM Revenue & Customs (HMRC).

Secondly, the gift may represent a tax asset for the receiver in the event that the donor dies within seven years after donating the item and the total value of the gifts given during the preceding seven years exceeds the tax exemption limit.

Inheritance Tax Rates and Exemptions

Rates

It is at 40 percent of the IHT rate of the taxable portion of the estate. Nevertheless, the reformed rate may be declined to 36% if 10% to any estate is donated to charity.

Exemptions and Allowances

1. Spouse or Civil Partner Exemption: Married persons and civil partners are allowed to take estate at no tax. Further, any unused portion of the allowance of £325,000 can be transferred to the surviving partner in order to increase the threshold to £650,000.

2. Residence Nil Rate Band (RNRB): When you fall under the main residence transfer category where you leave your residence to your direct descendants such as children or grandchildren, your specified rate may be up to £175,000 more than the current nil rate band. When used together with the standard threshold it is possible to pass on to the beneficiaries up to £500,000 of the estate absolutely free of IHT where the total estate is worth £2m or less.

3. Charitable Donations:  You want to keep your home and one option is to give it to a charity or a community sports club in order to get out of IHT.

4. Gift Allowances: You can give away up to £3,000 every year and you do not include this in the total assets in your estate IHT value. Unused can be carried forward up to the next tax year. Also, up to £250 can be given to anyone without worry about the amount and one can give to as many different people as desired.

Passing on Property

You can transfer your home to your spouse or civil partner without attracting any tax. For other beneficiaries, it is included in the estate by the value of the property in question. Giving your home as a gift during your lifetime is possible but comes with conditions:

• The object that is given must be secured for at least seven years from your life.
• If you remain residing in the house you are required to pay for the house at current market prices and other utilities.

If the property fails to meet these factors, it is ‘gift with reservation’ and therefore considered as part of the estate IHT.

Business and Agricultural Reliefs

1. Business Property Relief (BPR): Reduction of the amount of tax chargeable in respect of qualifying business assets up to 100%.

2. Agricultural Property Relief (APR): Likewise, is available for farmland and agricultural property.

Further adjustments declared in the Autumn Budget 2024 will halve these reliefs for specific assets from April 2026.

Changes Announced in the Autumn Budget 2024

- Frozen Tax-Free Threshold: The ‘staircase’ threshold is still set at £325 000 and is to remain frozen until April 2030.

- Pension Inclusion: From the 2027/28 tax year, the value of pension rights will form part of the estate’s total consideration.

- Non-Domicile Rules: For non-UK residents, from April 2025 IHT legislation will move to a residence-based system transformed from the previous 2nd July.

Paying Inheritance Tax

IHT has to be completed within the six months after the death of the person, who possessed the assets. If an amount remains unpaid for more than this period, interest will be charged for the same. HMRC provides an IHT Reference Number at least three weeks before making payments made by the executors. However, if funds are not forthcomin, a request for delay may be made.

Planning to Minimise Inheritance Tax

Expert IHT planning can therefore help you cut down your tax burden to your estate. Strategies may include:

• Utilizing gift allowances to the maximum.
• Personal – trust for children or grandchildren.
• Your spouse or civil partner receiving any type of property.
• To some extent, the prospects of BPR and APR needs to be further explored.

Seek Expert Advice from TVR Accountants

However, no one has to die with Inheritance Tax coming between them and their family, careful planning can help a great deal of money reach the intended recipients. We have adapted ourselves at TVR Accountants to provide appropriate tax advice on how you can save your family from IHT.

Contact us today for a consultation. We can work together on a strategy that will help you to reach the most of the value from your UK estate and to decrease tax burden.