Many of us know about inheritance tax and the nil rate band but how many of us know the percentage of tax that your estate may be subject to or how much you can leave to your loved ones tax free?
When an individual dies, generally speaking, they can leave up to £325,000 without it being subject to inheritance tax. This is known as the nil rate band and it has recently been supplemented by the residence nil rate band which is £100,000 but set to increase to £175,000 over the forthcoming years. With the residence nil rate band, amongst other requirements, your main residence must be left to a direct descendant, for example, a child or grandchild. Provided that the requirements for the residence nil rate band are met, an individual can at present, leave up to £425,000 without their estate being subject to inheritance tax.
So what is if your estate is worth more than £425,000 when you die, say for example, £525,000? If your estate was worth £525,000 you would deduct the residence nil rate band and the nil rate band which would leave you with a figure of £100,000. This figure would then be taxed at 40% which is the current rate of inheritance tax so your estate would be subject to an inheritance tax bill of £40,000.
The above is a simplified example of how inheritance tax works for illustrative purposes. There are lots of issues that would also need to be considered before calculating what inheritance tax is payable such as:-
- Spousal exemption
- Reduced inheritance tax rates
- Transferable nil rate band
- Potentially exempt transfers
- Immediate post death interests
At Emery Johnson Astills, as part of our Will drafting service, we can give you simple inheritance tax advice and advise you on your current inheritance tax position. If you are dealing with the estate of a loved one, we can assist you with administrating the estate which would include calculating what inheritance tax (if any), is payable to HMRC. We can also arrange for any payment of inheritance tax to be made.
If you need advice regarding making a Will or administering an estate, please do not hesitate to contact Emery Johnson Astills at either our Leicester Office on 0116 2554855 or our Loughborough Office on 01509 610 312.