YOU CAN LEAVE £1MILLION... WITH NO TAX
WHEN it comes to inheritance tax, every adult has a £325,000 nil-rate band.
This means that upon their demise, the first £325,000 of their estate – property, shares and cash minus any debts such as an outstanding loan – will be exempt from tax.
Any estate value above this threshold will normally be taxed at 40 per cent.
The tax must be paid before any assets are divided up in accordance with the wishes expressed in the deceased’s will – or if no will has been made, according to the rules of intestacy.
For married couples and civil partners, the current rules provide a spouse or civil partner exemption. This means that if one partner dies, the survivor can claim any unused nil-rate band, in effect providing them with a doubled-up nil-rate allowance of up to £650,000.
Ian Dyall, at Tilney, says: ‘This exemption does not apply to unmarried couples, so if you are in a committed relationship but remain unmarried, consider tying the knot – for tax reasons as well as love.’
A new allowance, called the residence nil-rate band, was introduced nearly two years ago. This is available for individuals who pass on a home to a child or grandchild – including stepchildren, adopted children and foster children.
It effectively acts as a boost to the existing £325,000 nil-rate band and currently stands at £125,000 – rising to £175,000 in April 2020.
It means married couples and civil partners could potentially leave £1 million to their children with no inheritance tax to pay.
Yet, there are pitfalls with this new allowance.
Quentin Holland is a partner of financial adviser The Private Office.
He says: ‘The residence nilrate band can only be used for passing on the family home – or the sale proceeds.
‘It can also only go to direct descendants which means it is unfair to those without children who may want to leave assets to nieces and nephews.’
He adds: ‘The allowance is also reduced for estates totalling more than £2 million – by £1 for every £2 that an estate is valued above £2 million.’