Inheritance Tax

There are seven key things that you need to know about Inheritance Tax:

• Transfers between a married couple are completely exempt (provided that the recipient spouse is domiciled in the UK) whether made during lifetime or in a Will.
• No Inheritance Tax is due on the first £325,000 of your estate (or what’s left of it after you have transferred some of it to your spouse). So if you're worth less than that, you've nothing to worry about.
  Note that this 'threshold' - the ‘IHT threshold’ - is normally changed every year in the Government Budget, but it has been frozen since 2009 and will remain at £325,000 until 2030
• From April 6th 2020, the effective IHT threshold rose to £500,000 provided that at least £175,000 of it is made up of the value of your main residence and is left to your children or your grandchildren - see ‘Residential Nil Rate Band’ below for full details.
• If you make a Will leaving your entire estate to your spouse then you will normally avoid paying any Inheritance Tax on first death. Otherwise, if you do not make a Will, you might incur Inheritance Tax as your Estate might not all go to your spouse. Note that this Inheritance Tax saving is only to be had on the first death of you or your spouse.
• The Inheritance Tax threshold for married couples and civil partners is, and has been since October 9th 2007, double the single person threshold.
• If you are due to pay Inheritance Tax and you leave more than 10% of your estate to charity then the Government will reduce your IHT bill by 10%.
  E.g. Estate £2,000,000.
  IHT Bill normally 40% of (£2,000,000 minus £325,000) = £670,000. Leaving £200,000 (10%) to charity will mean IHT Bill is 36% of (£2,000,000 minus £200,000 minus £325,000) = £531,000.
  This would represent a saving of £139,000
• Since 2017 we have had a second nil rate band, known as the ‘Residential Nil Rate Band’ (‘the RNRB’). The RNRB was introduced at £100,000 per person and rose by £25,000 per year until it reached £175,000 on April 6th 2020.

  Basically, the RNRB means that if you leave your house/flat to your children (or other direct descendents) then the individual Nil Rate Threshold is £500,000 and the total for married couples is therefore £1 million.

  Note that the RNRB applies to your main residence only and the property must be left directly, i.e. leaving it via a Discretionary Trust will NOT qualify for the RNRB (although via a Protective Property Trust it will). We therefore recommend ALL of our clients with Discretionary Trust Wills to RE-MAKE them as simple Mirror Wills.

  More details on the RNRB can be found at the government website here.