Inheritance tax (IHT), otherwise known as death tax is payable when a person passes away and their assets are passed on. In order to pay IHT , currently your estate should be worth more than £325 000 if you are single, or £650,000 if you are married or in a civil partnership. Anything over this limit will be taxed at 40% and this has caused a huge uproar as sometimes people end up having to sell their family home in order to pay inheritance tax.
Here is an interesting quote from Roy Jenkins , who was the Chancellor of the Exchequer between 1967-70
Although the IHT limits have changed over time, his statement still stands true.
However in the 2015 Budget, the chancellor announced a few changes to the IHT allowance.
The IHT allowance is going to eventually increase from £325000 to £500000 , meaning if you are a married couple your allowance will be £1m. The increase is by £175000 but the increase will happen in stages beginning in April 2017.
However the government recently reiterated this increase will not apply for childless couples. This will mean they will have to pay £140000 tax on a £1m property.
In the tax year 2017-18 the increase will be £100000
In the tax year 2018-19 the increase will be £125000
In the tax year 2019-20 the increase will be £150000
In the tax year 2020-21 the increase will be £175000
Lets take a look at how its going to affect you if you are single or married/ in a civil partnership
Single person
| Value of family home | Value of other assets | Value of the estate | IHT liability now | IHT liability from April 2020 |
|---|---|---|---|---|
| £175,000 | £175,000 | £350,000 | Nil | Nil |
| £200,000 | £300,000 | £500,000 | £70,000 | Nil |
| £250,000 | £400,000 | £650,000 | £130,000 | £60,000 |
| £400,000 | £600,000 | £1,000,000 | £270,000 | £200,000 |
| £750,000 | £750,000 | £1,500,000 | £470,000 | £400,000 |
| £1,000,000 | £1,000,000 | £2,000,000 | £670,000 | £600,000 |
Married couple with Children
| Value of family home | Value of other assets | Value of the estate | IHT liability now | IHT liability from April 2020 |
|---|---|---|---|---|
| £175,000 | £175,000 | £350,000 | Nil | Nil |
| £200,000 | £300,000 | £500,000 | Nil | Nil |
| £250,000 | £400,000 | £650,000 | Nil | Nil |
| £400,000 | £600,000 | £1,000,000 | £140,000 | Nil |
| £750,000 | £750,000 | £1,500,000 | £340,000 | £200,000 |
| £1,000,000 | £1,000,000 | £2,000,000 | £540,000 | £400,000 |
Knowing these limits are important when planning your estate as with prior planning you can save a lot of money if you are liable for IHT.
Seek financial advice should you require in advice regarding IHT. You can find an independent advisor on http://www.unbiased.co.uk
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