Inheritance Tax - £1m tax free?

There is a lot of commentary and articles in the press that tell you there is £1m that you can have tax free on death. This could be true, but with all things tax there are criteria that must be met and in particular for IHT legal Will planning that must be in place.

So where does this £1m come from? At the moment (Sept 2024) every individual has an IHT nil rate band of £325k, this being the amount that has nil tax charged when you die. There is also another nil rate band called the residential nil rate band of £175k. Total £500k. If your spouse has died before you their nil rate band and residential nil rate bands can be transferred to your death estate, total £1m.

The criteria!

• Your £325k can be reduced if, in the seven years prior to death you made any chargeable lifetime transfers. A chargeable lifetime transfer is usually created when you gift assets to a trust, but there can be other circumstances.

• A residential nil rate band is only available where you leave your home to direct descendants (children, grandchildren). The value is the lower of the nil rate band or the value of the property.

• The residential nil rate band is only available to death estates that have a total value of £2m or less. If the total value of your assets, before reliefs, is >£2m then the residential nil rate band will be tapered away at £1 for every £2 over £2m.

• Transferable nil rate bands and residential nil rate bands are only available where you are married or in a civil partnership. You can only transfer the value that has not been used, so if your spouse/civil partner left anything to anyone on their death the nil rate band available reduces.

£1m of IHT free assets on death is therefore not true for many people. With IHT at 40% and a high probability of changes in the legislation in the coming years, now is the best time to get IHT planning, to understand your potential IHT liability and get working on tax efficient strategies.

Most of us wish to leave a legacy for the next generation - book an IHT review with us at Forth Accountancy and we can work with you to ensure the best protection for your hard earned assets.