Inheritance Tax (IHT) has come under the spotlight over the past few years; the Office of Tax Simplification have conducted a couple of reviews on the unpopular tax, which was left untouched in the Spring Budget. The good news is that, with expert planning, you can legitimately reduce the amount of IHT payable to HM Revenue & Customs and pass on assets to your family as intended.

IHT thresholds – know your numbers

For individuals, the current IHT nil-rate threshold is £325,000, and £650,000 for a married couple or civil partners. Any unused portion of the nil-rate band can be passed to a surviving spouse or civil partner on death. Beyond these thresholds, IHT is usually payable at a rate of 40%.

Since April 2017, there has also been a main residence nil-rate band, which applies if you want to pass your main residence to a direct descendant (e.g. child or grandchild). For the 2020-21 tax year, this allowance is £175,000.

Added to the existing threshold of £325,000 this could potentially give rise to an overall IHT allowance of £500,000 for individuals, or £1m for those who are married or in civil partnerships.

It’s important to note that larger estates will find that residence relief is tapered, reducing by £1 for every £2 by which the net estate’s value exceeds £2m.

Take professional advice

There are a variety of ways you can reduce IHT and we can help you decide what could work best for you. If you feel that your estate is likely to be subject to IHT you should obtain in-depth professional advice that looks at all aspects of your requirements, lifestyle and goals, and develops a financial strategy that meets your needs.

It is important to take professional advice before making any decision relating to your personal finances. Information within this page is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK.

Tax and Estate planning are not regulated by the Financial Conduct Authority

The value of pensions and investments can fall as well as rise. You may get back less than you invested.

Will writing is not regulated by the Financial Conduct Authority. Quilter Financial Planning Ltd are not responsible for any will writing advice.