Inheritance tax or “IHT” is still a “voluntary” tax if you plan for it carefully and far enough ahead. What is great about IHT is that you do not have to rely on dodgy artificial tax schemes to avoid it, as there are a number of legitimate ways to avoid it built into the tax. However, if you fail to plan for IHT, you could find that your family is left with far fewer assets than you wanted.

The IHT rules are complicated, so it is best to seek inheritance tax advice to help you understand the position and take advantage of legal ways to avoid IHT.

Of course, you may prefer 40% of your estate to end up with the Chancellor knowing he or she will spend it on catastrophic government IT and transport projects but if you would rather that wealth went to your heirs then read on.

What is Inheritance Tax Planning?

Inheritance tax is a tax on the value of a person’s worldwide estate (i.e., their property, money and possessions) when they die. In certain cases, it may also be charged on large lifetime gifts (see below). Persons with a non-UK domicile will usually only pay IHT on their UK assets unless they are deemed to have become domiciled in the UK.

Do you have to pay inheritance tax on jointly owned property?

For inheritance tax on unmarried couples, the liability to pay inheritance tax on assets owned jointly with another person to whom you are not married or in a civil partnership will depend on whether you and your co-owner own the property as “joint tenants” or “tenants in common”, and whether there’s a will.

You can read more about inheritance tax on jointly owned property here.

Inheritance Tax Planning Rates Explained

The rate of IHT depends on the value of a person’s estate. The value is based on the assets (cash in hand and cash in the bank, investments, property or business, vehicles, payments from life insurance policies etc), less any debts and liabilities such as mortgages.

Normally IHT is not payable if either:

  • The value of your estate is £325,000 or less; or
  • You leave everything over £325,000 to your spouse, civil partner, a charity or a community amateur sports club.

If neither of these applies, your estate will be taxed at 40% on anything above the £325,000 threshold when you die (or 36% if you leave at least 10% of the net value to a charity in your will).

However, this £325,000 tax-free threshold might be higher depending on your circumstances – in some cases as high as £500,000, or even £1 million (see below).

Who pays Inheritance Tax?

IHT is normally paid by your executors or personal representatives after you die out of the assets in your estate before the remainder can pass to your family or heirs.

What are some of the main Inheritance Tax exemptions?

  • the ‘nil-rate band’ of £325,000
  • but if you’re leaving your home to your direct descendants, e.g., children or grandchildren, the basic allowance of is £325,000 but to that, you add the ‘residence nil rate band’, which is 2020/21 was £175,000 so that no inheritance tax is charged on the first £500,000 of the estate (£325,000 + £175,000) but this £175,000 main residence allowance only applies though if the estate is worth £2 million or less and in excess of this you lose £1 for every £2 of value above £2 million
  • assets left to a spouse or registered civil partner, provided they’re living in the UK, are exempt from inheritance tax
  • plus the surviving spouse’s inheritance tax allowance rises by the percentage of the allowance that the deceased spouse didn’t use which means that together a couple can currently leave £1,000,000 tax-free
  • farms, businesses and woodlands also attract IHT relief

How Can Patrick Cannon Can Help With Inheritance Tax Advice?

This is one area of tax where you get what you pay for, and the old adage “buy cheap, buy twice” rings true. If you have a large estate or are thinking of a large lifetime transfer, inheritance tax advice from an experienced tax adviser like Patrick Cannon will potentially save your heirs a great deal of money. Capital gains tax advice, stamp duty land tax, and, if relevant, VAT advice can also be factored into the inheritance tax planning.

IHT is a complex tax but with a wide range of reliefs and exemptions that, with careful planning and specialist tax advice, render much of it voluntary. You can read more about the complexity of inheritance tax advice here.

How Patrick Can Help

Inheritance tax advice very complicated tax. If you are considering how to provide for your spouse and family when you die and wish to minimise the IHT or if you are from overseas and wish to protect your assets from inheritance tax or whether you can claim relief, contact Patrick Cannon to ensure you don’t miss out on any available planning or relief.

Frequently Asked Questions

Get In Touch

For professional and insurance reasons Patrick is unable to offer any advice until he has been formally instructed.