Published: 25/05/2023 By Mackenzie Street
What is inheritance tax?Inheritance tax is a tax on the estate of someone who has died, and potentially gifts that they have made in the lead up to death. The inheritance tax rate is normally 40% and is only charged on the part of the deceased’s estate that exceeds £325,000.
Example: if an estate is worth £400,000 then the inheritance tax liability may be £30,000. (£400,000 less £325,000 equals £75,000. £75,000 multiplied by 40% equals £30,000.)
Fact: only 1 in 20 estates in the United Kingdom pay inheritance tax. If you are the 1 in 20 then you could benefit from speaking to one of our financial advisors.
The nil rate band and residence nil rate bandThe nil rate band is the part of the estate that is not subject to inheritance tax. For the 2023/24 tax year, the nil rate band is fixed at £325,000. The estate will only pay inheritance tax on the part of the estate that exceeds the nil rate band.
|Portion of value
|Inheritance tax rate
|£0 - £325,000
The residence nil rate band is an additional amount that can be offset against the family home. For the 2023/24 tax year, the residence nil rate band is fixed at £175,000. The residence nil rate band can be used together with the nil rate band to give individuals a total inheritance tax free amount of up to £500,000.
Example: if an estate is worth £750,000 and includes a family home worth £250,000 then the inheritance tax liability may be £100,000.
Fact: the nil rate band and residence nil rate band have been frozen until April 2028.
|Assets (not including family home)
Less nil rate band
Less residence nil rate band
Net estate liable to inheritance tax
Inheritance tax at 40%
Inheritance tax planning at tba Wealth Managementtba Wealth Management have been by the sides of clients navigating their inheritance tax issues for over 25 years. Our financial advisors create comprehensive inheritance tax plans designed to mitigate inheritance tax bills, making use of exemptions and allowances to ensure the utmost of our clients’ estates go to their chosen beneficiaries.
If you would like some help with inheritance tax planning, please book a free consultation with one of our financial advisors here
This article is based on our understanding of current tax legislation. Levels of taxation will depend upon individual circumstances and may be subject to change in the future.