After my slightly tongue in cheek tax tip last week suggesting that you can avoid inheritance tax (IHT) completely if you trust your beneficiaries enough to hand over everything sooner rather than waiting for your death here are the latest inheritance rates and bands
- Nil-Rate Band (NRB) – The first £325,000 of an estate is normally taxed at 0%
- Residence Nil-Rate Band (RNRB) – An additional £175,000 allowance may apply if a main residence is left to direct descendants (children, grandchildren, etc.). Combining these two bands gives you £500,000
- Married Couples / Civil Partners – Unused NRB and RNRB can generally be transferred to a surviving spouse or civil partner. So the combined tax-free allowance is up to £1,000,000
- Annual Gift Allowance – an individual can give away £3,000 per tax year free of Inheritance Tax. (If you don’t use the exemption in one tax year, you can carry it forward one year only, allowing up to £6,000 to be gifted in some circumstances)
- Marriage / Civil Partnership Gift Allowance – You can make tax-free gifts when someone is getting married or entering a civil partnership:
£5,000 to your child.
£2,500 to a grandchild or great-grandchild
£1,000 to anyone else
- Other Useful Small Exemptions
Small gifts exemption: up to £250 per person per tax year to any number of individuals
Normal expenditure out of income: regular gifts from surplus income can be immediately exempt from IHT if they do not reduce your standard of living and are properly documented
- Other lifetime gifts to individuals are usually outside the estate if the donor survives 7 years after making the gift. (Gifts within 7 years may still be taxable, although taper relief can reduce the tax after 3 years)
- Reduced Rate for Charitable Giving – the usual rate for IHT is 40% but this is reduced to 36% if at least 10% of the net estate is left to charity