Inheritance Tax

Tax On Your Estate

Are you seeking to protect your loved ones from a hefty inheritance tax bill on your estate when you pass away? Please contact us for expert guidance and strategic inheritance tax planning.

At Peer Accountants, we specialise in helping clients navigate the complex landscape of inheritance tax. Our team of expert professionals provides personalised inheritance tax services that cater to each client’s unique circumstances. We understand the importance of efficient estate planning, so we focus on delivering clarity and peace of mind through strategic advice and meticulous tax planning.

Our service involves thoroughly evaluating your estate to identify assets and potential liabilities. We then develop a tailored tax planning strategy that maximises reliefs and exemptions available under the law. We are committed to guiding you through the complexities of inheritance tax planning, utilising techniques such as gift exemption, business property relief (BPR), fall-in value relief, agriculture property relief (APR) and trusts to optimise your estate’s value for your beneficiaries.

With Peer Accountants, you can be confident that your legacy is preserved, ensuring your loved ones are protected without the added stress of excessive taxation. If you want to protect your loved ones from a potentially significant inheritance tax bill on your estate when you pass away, please contact us for expert guidance and strategic inheritance tax planning.

Frequently Asked Questions

What is inheritance tax?

Inheritance tax in the UK refers to a tax levied on the estate of a deceased person. An estate refers to a person’s total net worth, which includes their property, money, investments, businesses, cars, jewellery, art, and other possessions. However, this term is generally used for estates exceeding a certain value threshold. Currently, the tax rate for such estates is set at 40% on the portion of the estate that exceeds this threshold.

Inheritance Tax (IHT) nil-rate band in the UK is a threshold set at £325,000, below which an estate is not subject to IHT. If the estate’s value exceeds this amount, IHT is charged at 40% on the excess. With the transferable nil-rate band, married couples and civil partners can effectively double their nil-rate band to up to £650,000. This allows any unused portion of the nil-rate band from the first spouse or partner who dies to be transferred to the surviving spouse or partner, reducing or eliminating the IHT liability on their estate.

Residence Nil-Rate Band (RNRB) is an allowance in addition to the UK’s standard Inheritance Tax (IHT) nil-rate band, aimed at reducing the IHT for families passing on a family home to direct descendants. Set at £175,000, it raises the IHT threshold to £500,000 per individual, or up to £1 million for married couples and civil partners when combined with the standard nil-rate band and transferred between spouses. The RNRB applies when a residence is left to children, grandchildren, step-children, adopted children, or foster children. It starts to taper off for estates valued over £2 million, potentially reducing to zero for very high-value estates.

In the United Kingdom, an individual can receive an inheritance of up to £325,000 without paying taxes, thanks to the nil-rate band. If the estate includes a family home passed on to direct descendants, the amount can increase to £500,000, with the additional £175,000 residence nil-rate band (RNRB). If you are married or in a civil partnership, these allowances can be combined and transferred, potentially allowing up to £1 million to be inherited tax-free. However, the RNRB is reduced for estates worth over £2 million, which affects the total tax-free amount available.

A wife does not have to pay Inheritance Tax (IHT) on assets inherited from her husband, as transfers between spouses or civil partners are exempt from IHT. Furthermore, any unused nil-rate band and residence nil-rate band can be transferred to the surviving spouse, potentially increasing the amount that can be passed on tax-free to beneficiaries. However, IHT may apply to the surviving spouse’s estate if it exceeds these thresholds upon death.

Money left to charity is exempt from Inheritance Tax (IHT). This means that any part of an estate left to a registered charity does not count towards the total taxable value of the estate. Moreover, if you leave at least 10% of your “net estate” to charity, it can reduce the rate of IHT on the remainder of the estate from 40% to 36%, which can significantly decrease the amount of tax payable. This provision encourages charitable donations by reducing the IHT liability for estates that support charitable causes.

When someone passes away, the Inheritance Tax must be paid within six months. For example, if a person dies in January, the tax payment is due by the end of July. If the tax remains unpaid within six months, HMRC will start charging interest on the outstanding amount. If you are uncertain about the exact amount of tax you owe, you can still make initial payments, also known as ‘payments on account.’ This allows you to pay some tax before the final amount is determined and will reduce the interest.

You can agree with HMRC to pay in more than six months, but HMRC will still charge interest.

It is possible to pay Inheritance Tax (IHT) in installments over a period of up to ten years for assets that are harder to sell, such as property, shares, or other valuables. While the initial payment is due within six months after the deceased’s death, paying the tax on these assets in yearly installments allows for more flexibility in managing the estate’s assets without the need to sell them hastily to meet the tax deadline. However, it is essential to note that you will have to pay interest on your installments.

Avoiding or reducing Inheritance Tax (IHT) in the UK requires careful estate planning and taking advantage of available allowances and reliefs. There are several strategies that can be used to achieve this goal:

  1. Gifts and Exemptions: You can gift assets during your lifetime to reduce the size of your estate. There are several exemptions and allowances, such as:

    • Annual Exemption: You can give away £3,000 worth of gifts each tax year without them being added to the value of your estate.
    • Small Gifts: You can make small gifts of up to £250 per person per year to as many individuals as you like.
    • Wedding or Civil Partnership Gifts: Parents can gift £5,000, grandparents £2,500, and anyone else £1,000 towards someone’s wedding without adding it to the estate.
    • Gifts out of Income: Regular gifts made out of your income that do not affect your standard of living can also be exempt.

  2. Potentially Exempt Transfers (PETs): If you live for seven years after making a gift, it is generally not subject to IHT. This is called a Potentially Exempt Transfer.

  3. Trusts: Placing assets in certain types of trusts can also help manage IHT liabilities, as the assets in the trust may not be considered part of your estate.

  4. Charitable Donations: Gifts to charities, political parties, and some national institutions (like museums) are exempt from IHT. Additionally, if you leave at least 10% of your net estate to charity, the IHT rate on the rest of your estate may be reduced from 40% to 36%.

  5. Business Relief: Owning a business or shares in certain types of businesses can qualify for Business Relief, which can reduce the value of the business or shares for IHT purposes by up to 100%.

  6. Agricultural Relief: Similar to Business Relief, Agricultural Relief can reduce the value of farmland and certain other agricultural assets passed on as inheritance.

  7. Spouse or Civil Partner Exemption: Assets passed to a spouse or civil partner are exempt from IHT, and planning for the transfer of assets between spouses or civil partners can help reduce the IHT liability.

  8. Use the Residence Nil-Rate Band (RNRB): This is an additional allowance when you leave your family home to direct descendants, such as children, grandchildren, step-children, adopted children, or foster children.

The responsibility of paying Inheritance Tax (IHT) in the UK typically falls on the executor of the deceased’s will or the estate administrator if there is no will. These individuals are responsible for managing the estate’s affairs. This includes calculating the IHT due, submitting the required forms to HM Revenue & Customs (HMRC), and paying the tax.