InHouse Wills & Probate
Inheritance Tax
The basic ideas behind calculating Inheritance Tax (IHT) are quite straightforward (although the details are slightly simplified here). However, as with any tax, the complications come when doing it for real.
- Add up the gross value of the estate (everything in sole name, the share of things in joint names, major gifts given away in the last 7 years, anything given away any time but from which the donor still benefits)
- Take away any outstanding mortgage, debts (this can include the funeral, but not other estate administration expenses)
- Take away any exemptions (anything going to legal spouse, anything to UK-registered charity)
- Take away ‘relieved’ assets (e.g. qualifying family business, or a working farm)
For what is left, up to the IHT-free limit (the Nil Rate Band) is taxed at 0% but the excess is taxed at 40%. In 2009/10 the NRB is £325,000, so leaving £326,000 produces an IHT bill of £400. By careful planning even those with an apparent IHT problem may be able to reduce or even eliminate their family’s future tax bill. However, your Will writer will need to look at this carefully with you.
The new IHT rules bring in the ‘Transferable NRB’, which might mean that couples can leave everything to each other yet still exploit both NRBs when the family eventually inherit.
The planned Nil Rate Band limits for coming years are normally published in the Budget. However, the Pre-Budget Report of Dec 2009 has altered the plans for 2010/11 and instead of the original increase to £350,000 the NRB is being kept at £325,000. The Conservatives have talked of raising the limit to £1 million (eventually) - if they get in and if they keep their promise!
Inheritance Tax
Inheritance Tax (IHT) is payable at 40% - so no wonder many people are worried about it.
The Pre-Budget Report of December 2009 has frozen the Nil Rate Band limit at £325,000.