Inheritance Tax – Maximising the wealth your loved ones receive

Inheritance Tax – Maximising the wealth your loved ones receive

If you have a large estate and are a high-net-worth individual, Inheritance Tax (IHT) could impact your loved ones hugely, when it comes to your estate being passed down and the amount that they will receive when you pass away.

How does Inheritance Tax work?

Inheritance Tax applies on the estate of someone who has died when at least part of the estate exceeds the tax-free threshold of £325,000 (now frozen until April 2028). This usually consists of property, investments and general savings.

The Inheritance Tax rate is 40 per cent, charged on any of the estate that exceeds £325,000.

If you are a high-net-worth individual and believe your beneficiaries will be charged Inheritance Tax after you have passed away, it is important to understand what they will pay and if there are any ways to plan for this and mitigate the costs in any way.

Understand the value of your estate in advance

Having an accurate idea of your estate value will help you to understand how much Inheritance Tax your beneficiaries are likely to pay.

Remember to account for any debts and funeral expenses when you are working out your estate’s value. It is also beneficial to review this regularly, as the value of your estate is likely to increase over time.

Leaving your property to your spouse/civil partner

If your property is left to your civil partner or spouse, they will not pay any IHT and this is applicable across all assets you leave to your spouse or civil partner.

However, if you leave the property to anyone else in your Will, then they may have to pay IHT, if the estate surpasses the threshold.

Residence nil-rate band

If you own a property, you can apply this additional IHT to the threshold of £325,000. This means that the overall allowance is increased to £500,000 but you must meet certain criteria for this.

You must have lived in the house at some point, after 8 July 2015.

And you must leave the house to a direct descendant, like your children, grandchildren, stepchildren etc.

If the value of your estate surpasses £2 million, then RNRB is tapered.

RNRB decreases by £1 for every £2 that your estate is above £2 million.

If you leave your entire estate to a spouse, then you won’t make use of your nil-rate band and your spouse’s tax-free allowance will double to £650,000.

Similarly with the RNRB, if this is unused, your spouse will have £350,000 added to their tax-free allowance. This is largely only useful if your property is worth £350,000 or more.

We can offer expert guidance on IHT and how to maximise your estate for your loved ones, contact us for advice.