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Inheritance tax

Many people make the error of assuming that the full value of their assets will be left to loved ones on death, providing them with sufficient ‘Inheritance’. It is often overlooked that taxes may be payable if you have built up a substantial estate through your life and therefore the amount you think you are leaving may be reduced dramatically. Our wealth management Newcastle Team will be able to advise you on your options.

Inheritance Tax (IHT) is payable when the total value of an individual’s estate exceeds the Inheritance Tax threshold, set at £325,000 for the tax year 2023/24. All assets that exceed this threshold will be subject to tax, payable at 40%.

An estate for which there is no IHT payable is described as an excepted estate. New rules allowing the transfer of the ‘nil-rate allowance’ (IHT threshold) to a spouse or civil partner were introduced in October 2007. If any of the nil-rate allowance is unused (currently set at £325,000), it can be transferred to the deceased’s spouse or civil partner’s estate after death, effectively increasing the allowance for the surviving spouse on their death.

In addition, where an individual owns a home, there is the option to utilise your Residents Nil Rate Band to a maximum of £175,000 per individual, although conditions do apply.

If an individual survives more than one spouse or civil partner, the unused allowances of more than one spouse can be transferred, up to a maximum of an additional 100% of the allowance applicable at the time of their death. However, this transfer must be claimed within two years of the deceased’s death.

In most cases, gifts of up to £3,000 in each tax year are exempt, plus up to £3,000 of the previous years unused allowance. Gifts to individuals of up to £250 are also exempt, as are wedding gifts of up to £5,000 by each parent or step-parent and £2,500 by each grandparent or great-grandparent. Gifts to charities established in the UK, political parties, housing associations and for ‘national purposes’ (such as Universities and Museums) are also exempt.

Non-exempt gifts (most gifts not included in the lists above) made during the last seven years may be included in the deceased’s estate for IHT purposes, in part or wholly, depending how recently the gift was made, though taper relief may apply.

In most cases, the tax must be paid before probate is granted and the personal representative may find that the holding association may be unwilling to release the assets of the estate until the appropriate taxes have been paid. It may therefore be necessary to raise a loan for the tax and probate fees and this loan may be repaid from the estate’s assets once grant has been issued and assets released.

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