How Inheritance Tax Works (IHT)
Inheritance Tax is an incredibly complex subject but vitally important and its origins date back to the Napoleonic Wars when the government introduced a levy to help fund the wars against Napoleon. As the name suggests it’s a tax that we pay based on the value of our estate. Our estate includes any money, property and possessions and the value is used to calculate what, if any tax is due after we die. If you live in England and Wales then you have what is known as a ‘Nil Rate Band’. This is a zero rated tax bracket meaning that essentially everyone with an estate worth more than £325,000 is liable to pay inheritance tax unless planning is done and that you won’t pay IHT on the first £325,000 in our estate. Inheritance Tax is paid from our estate by our executors after we have passed away. Our executors will calculate what tax we owe and then pay it to HMRC before any other gifts etc will be made. In some cases, we may have to sell our property in order to pay Inheritance Tax. There are a couple of important considerations though. There is normally no tax to be paid if: With all of this in mind, and if you’re married or in a civil partnership then you could have a combined Nil Rate Band of £1,000,000. According to the Gov website the NRB is fixed at £325,000 until 2026 but you can use a partner’s unused NRB if you are widowed or a surviving civil partner. Inheritance Tax has to be paid before the 6 month anniversary of your death. If it’s not paid by this point the HMRC might start charging interest. In many cases, even if the tax calculations haven’t been completed, if you’re aware that IHT will need to be paid it’s a good idea to make a payment towards the bill. This is known as making a payment on account. If you’re worried about Inheritance Tax and would like to start planning to mitigate any tax then consider some of these strategies: If you would like to know more about Inheritance Tax or to have a free no-obligation discussion to talk about your circumstances, then get in touch.