Inheritance Tax

Inheritance Tax (IHT) is payable if a person’s estate, including their property, money and possessions is worth more than the IHT threshold when they die.

There is a tax-free allowance called the ‘nil-rate’ band, which is currently £325,000. If the value of the estate exceeds this figure, and the estate isn’t left to a spouse, civil partner or a charity, (and isn’t eligible for reliefs such as agricultural or business relief) then the excess will be liable to IHT at 40%.  

From April 2017, estates have benefited from an additional residential nil-rate band (RNRB) which is currently £175,000, where the deceased’s residence is left to their direct descendants (children, step-children, adopted and fostered children and their respective spouses and civil partners). Where an estate has a net value of more than £2m, the RNRB is withdrawn at a rate of £1 for every £2 over this threshold.  

If the nil-rate band and RNRB are both rolled over unused on the first death to the surviving spouse or civil partner, on the second death this would mean there could be a tax-free nil rate band of £1m available.  

The freeze on thresholds has been extended from 2028 to 2030.

Pensions subject to IHT from 2027

During the Autumn Budget 2024, the Chancellor announced that unused pension funds will be subject to IHT from 6 April 2027.

When you die the value of your pensions will be added up with your other assets to calculate whether your estate will pay IHT. If the value of your estate is above £325,000 (or £500,000 if you’re leaving your home to a direct descendant), any pension funds above that threshold will be liable for IHT at 40%. If you’re passing on your pension to your spouse or civil partner, this can be inherited tax-free, as with any other assets left to a spouse or civil partner.

The rules involved in Inheritance Tax are complex and it is for this reason that it’s important to discuss your situation with us, as then you will be able to understand its potential effects on you, whether your loved ones will lose out on some of their inheritance and, what we can do to reduce or even eliminate its effects.  

INHERITANCE TAX PLANNING, WILL WRITING, TRUSTS AND TAXATION ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY  

Want to know more?

Call us for a friendly chat on 01274 620702 or email: info@meridianwealth.org