PERSONAL FINANCE
How to transfer your nil-rate band and avoid a potential inheritance tax hit Britons are paying record amounts of IHT but there are things you can do to limit your tax bill
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s a nation we’re paying a record amount in inheritance tax, as the value of property and has risen but the tax-free bands for inheritance tax (or IHT for short) haven’t. Government figures show that in the year to April 2022 we paid £6.1 billion in inheritance tax, a record sum and a 14% jump on the previous year’s figures – marking the biggest percentage jump in seven years. Inheritance tax has even become part of the current Conservative leadership election debate, with candidate Liz Truss hinting at reforms to the system and saying she wants to review the tax. With more estates being dragged into paying inheritance tax, it’s important to make the most of tax breaks on offer. MAKING A TRANSFER One big area is the ability to transfer your nil rate band to a spouse, but often the rules are complicated and can be underused. Here’s everything you need to know.
Everyone currently has a £325,000 inheritance tax allowance, meaning they can leave an estate worth up to that amount without paying any inheritance tax. After that the tax is paid at 40% on everything above that amount. What’s more, someone leaving a home to a direct descendant as part of their estate gets an additional allowance of £175,000, called the residence nil rate band. However, complications can occur when one half of a couple dies before the other. The benefit of the nil rate band is that it can be transferred to a spouse or civil partner, so any unused part of the allowance can be carried over. This means that the surviving spouse could leave an estate worth up to £650,000 without having to pay inheritance tax. If a home is part of the estate, they could leave a total estate worth up to £1 million free of IHT. There’s a couple of things to note: first, you must have been married or in a civil partnership when the first death happens, so it can’t be used by those who are divorced or those who planned to marry but hadn’t tied the knot yet. 11 August 2022 | SHARES |
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