Ask an Expert
Ask an Expert Rachael Pratt, Solicitor at Amphlett Lissimore, talks to us about inheritance tax - what it is, how much it is, and why most of us won't have to pay it. Does it make a difference if I'm not married to my partner?
What is inheritance tax? Inheritance tax is a tax on your estate when you die. Your 'estate' means everything that belongs to you, including your home, personal belongings, savings, investments, and so on. If your estate is taxable, the tax must be paid before anyone can inherit.
How much is inheritance tax? Inheritance tax is payable at a flat rate of 40%. However, only 4% of estates currently pay inheritance tax. The other 96% are tax-free. I will explain why. Every estate has a tax-free allowance on which no tax is paid. There is no tax on the first £325,000 of assets (the Nil-Rate Band). So, unless your estate is worth more than £325,000 there will be no tax. If you leave your whole estate to your husband, wife, or civil partner there will be no tax. It is the same if you leave it to charity. Gifts to your spouse or charity are exempt from inheritance tax. If you leave only part of your estate to your spouse or charity, the remaining part may be taxable, but only if it exceeds the Nil-Rate Band.
I'm afraid it does. No matter how long partners have been together, anything they leave each other won't be exempt from tax, unless they're legally married or registered civil partners. And if one partner dies without leaving a will, the survivor won't automatically inherit anything. When unmarried couples ask me about inheritance tax, you can guess what advice I give!
Are there other tax-free allowances? If your spouse dies first, leaving everything to you, your estate gets an extra Nil-Rate Band. Then the first £650,000 that is not exempt will be free of tax. If only part of your spouse's estate is left to you, then you may still get part of the extra Nil-Rate Band, depending on how much your spouse left to other people. The Residence Nil-Rate Band (RNRB) is a separate allowance. Subject to conditions, this can apply if you leave property you have lived in to your children or other descendants. This can be up to £175,000 per estate. You and your spouse each have a separate RNRB, and in this way up to £1 million of your combined estates can avoid tax.
Can I save my children inheritance tax by giving them my property now? Anything you give away in your lifetime may still be taxed as part of your estate if you die within seven years. Even after seven years, a lifetime gift may still be taxed when you die if you still receive a benefit from it. Giving your home to your children may not save inheritance tax if you continue to live there and may have other tax consequences too. There are other inheritance tax exemptions relating to gifting that you can make during your lifetime that are less restrictive than gifting your home - you could ask your solicitor when making your will.
Is inheritance tax about to be abolished? We will find out on 6 March 2024!
If you leave your whole ❛❛estate to your husband, wife, or civil partner there will be no tax. It is the same if you leave it to charity. Gifts to your spouse or charity are exempt from inheritance tax.
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For more information, visit www.allaw.co.uk email contact@allaw.co.uk or contact the team on 020 8771 5254 7
