What happens if I want to protect my assets from IHT?
Individuals and families who want their legacies to be tax-efficient need to tread very carefully in order to ensure their estates do attract too much Inheritance Tax (IHT) when they die.
The rules governing IHT in England and Wales are complex and confusing, which is why seeking professional advice is a wise step to ensure that your financial affairs are as tax-efficient as possible.
How is IHT levied?
IHT is levied at a rate of 40 per cent of an estate’s total value on all estates valued at £325,000 or more. This £325,000 threshold is known as the ‘nil rate band’ and, despite ever-rising wealth across the country, has remained frozen at this amount for several years.
According to up-to-date figures from HM Revenue & Customs (HMRC), the Treasury collected a record £5.3 billion in IHT last year – up 13 per cent on the amount of IHT brought in the previous year.
Reports continue to emerge suggesting that more and more middle-class families are falling foul of the so-called ‘death tax’, which is why it is important to plan ahead by seeking specialist advice and exploring all of the options available.
The RNRB
One option worth exploring might be the additional residence nil rate band (RNRB). First introduced in April 2017, this is an additional tax-free threshold families can tap into if they plan on leaving a residential property to their direct lineal descendants in their Wills.
Currently, individuals who take advantage of the RNRB today can pass on an additional £125,000 completely tax-free.
As married couples or those in a civil partnership can combine their allowances, this means that couples can effectively pass on £900,000 worth of property completely tax-free if they seek appropriate advice to incorporate the RNRB into their Wills.
Charitable legacies
Individuals can also reduce the rate at which they will incur IHT on the total value of their estate by passing a portion of it to a charity when they die.
By leaving 10 per cent of their estate to a charity, individuals will pay IHT at a rate of just 36 per cent as opposed to 40 per cent, for example.
These are just a handful of the options available and there are a number of other ways families and individual can mitigate their eventual IHT liability.
For tailored IHT advice, speak to our expert team today.
