Inheritance Tax 2021: The Facts You Need to Know
The HM Treasury is said to have raised around £5.2 billion from Inheritance Tax (IHT) over the course of the 2019-20 tax year. The sum, reportedly at its lowest in a decade, is said to have decreased due to changes in the 2017-18 Residence Nil Rate Band not having filtered through, less receipts being filed and a reduction in the people paying the tax.
A highly debated and publicised topic, Inheritance Tax to HM Revenue and Customs (HMRC) is paid for via the funds of the deceased’s estate.
With a furlough scheme to date having accumulated around 30 billion pounds worth of debt there are reports and talks of potential increases to IHT in future budgets and announcements to recoup these costs.
Having a good basis of understanding surrounding IHT with the added benefit of professional guidance can help you to plan for your financial future, your estate and how that impacts your loved ones too.
What is Inheritance Tax (IHT)?
Inheritance Tax is a tax that is paid on the estate of a person whom has died and from the proceeding funds of said estate.
Should you leave your estate to your spouse, civil partner, charity or community amateur sports club or if your estate is below the value of £325,000 no IHT will be due. You do however still need to report it to HMRC.
If your estate is worth less than the allocated threshold and you’re passing it onto your spouse or civil partner, your unused threshold can be added to theirs.
What is The Nil Rate Residence Band?
Inheritance Tax is paid at a 40% rate after the first £325,000 of your estate. However, should you leave your property to your children or grandchildren (a direct descendant) your threshold could be increased to £500,000.
This is called the ‘Nil Rate Residence Band’ or sometimes and more commonly referred to as the ‘Main Residence Band’ and is essentially an additional allowance.
Inheritance Tax Rates and Reliefs
The standard rate as stated above for IHT is 40% but reductions and reliefs can be sought on particular assets and charitable donations.
Who Pays IHT?
If there’s a Will the person dealing with the estate is called the ‘executor’. The executor will be responsible for paying Inheritance Tax from the estate to HMRC.
The beneficiaries of the estate don’t usually pay tax on the things they inherit although there can be related taxes such as if a beneficiary was to acquire property through the Will and to gain a rental income.
If you have given gifts greater than the value of £325,000 and have died within 7 years of offering the gift then tax may well need to be paid.
What Happens If You Inherit Property?
By law you can pass on your home to your spouse or civil partner in the event of your death and within these circumstances, you would be classified as exempt from IHT.
If you decide to leave your home to another individual in your Will it counts towards the value of your estate.
As previously mentioned above, your threshold allowance of which is tax free can be increased to £500,000 if you own a home or even a proportion of it if;
- You leave it your children or grandchildren
- And your estate is to the value below £2 million.
Immigration Act: Right to Rent
The Immigration Act requires you as a landlord to ensure your tenant has the right to rent in the UK by taking a copy of their original ID documentation and a visa if it’s required for them to be in the UK within 28 days of granting tenancy.
Seek Professional Guidance
Seeking professional guidance and support from a trusted and experienced solicitor can ensure that you can distribute your wealth and estate as you would wish to and that your loved ones are cared for as you would want them to be.
At Guardian Solicitors we care about you and as our client we will work closely with you to help find the right choice that matches your legal needs at the right time.
For further details on Inheritance Tax or if you’re looking to make a Will contact us at Guardian Solicitors to arrange an initial meeting by emailing email@example.com or by calling 0203 301 6600.