Harold Stephens: Understanding Inheritance Tax

Richard Higgs, Chartered Independent Financial Planner

Inheritance tax (IHT) is a levy imposed on the estate (the property, money, and possessions) of a deceased person. IHT is an important aspect of estate planning and can have significant implications for beneficiaries. Here are the IHT fundamentals:

Thresholds and Rates:
Every adult is entitled to a tax-free allowance known as the ‘nil-rate band.’ As of 2024, this threshold is £325,000. In addition to the nil-rate band, there is also a ‘residence nil-rate band’ which applies when a residence is passed on to direct descendants such as children or grandchildren. The residence nil-rate band is currently set at £175,000 per individual. The standard rate of IHT is 40%, applied to the value of the estate above the combined nil-rate bands.

Exemptions and Reliefs:
Certain assets and transfers are exempt from IHT. These may include assets left to a spouse or civil partner, donations to charities, or gifts made at least seven years before death.

Business relief is available for certain qualifying assets (sometimes referred to as ‘IHT-Free ISAs’) which aims to reduce the taxable value of these assets, potentially lowering the overall IHT liability within two years.

Lifetime Gifts:
Gifts made during an individual’s lifetime can impact the IHT liability on their estate. Generally, gifts made more than seven years before death are exempt from IHT.

However, gifts made within seven years of death may be subject to inheritance tax if they exceed the annual gift allowance or fall outside other exemptions.

If you would like us to conduct a complimentary inheritance tax review to find out whether you have a potential liability, please get in touch by calling 0117 3636 212 or email office@haroldstephens.co.uk. Visit haroldstephens.co.uk