Not all estates will be big enough to pay inheritance tax (IHT), but nevertheless you must take it into account in your will.
From April 2017, a IHT allowance of £100,000 was introduced for the family home, where this is the main residence and part of the estate, in addition to the £325,000 allowance you will have as an individual.
This means that, including your main home, you can now pass on up to £425,000 to your loved ones without having to pay IHT.
However, if your spouse or civil partner is the sole beneficiary, no tax is paid, whatever the amount you leave to them.
What about inheritance tax on gifts?You can make lifetime gifts up to a total annual limit - £3,000 for 2017/2018 - without tax. This annual gift exemption can be a good option if you are able to take advantage of it.
Any unused annual gift allowance can be carried forward to the following tax year, but no longer than a year. So you must use your exemption from last tax year by April 5th of the current year, or lose it. You must also make sure that any cheques are cleared by April 5 or they will count in the next tax year.
Any gifts of up to £250 can be given to an unlimited number of separate recipients without having to pay IHT. Wedding or civil partnership ceremony gifts between family members also do not incur IHT. Potentially exempt transfers (PETs) allow you to make unlimited gifts without IHT as long as you live for seven years after the gift is made.
Please note that levels of tax relief can change and that this information is based on current understanding of taxation legislation and regulations. The Financial Conduct Authority does not regulate tax advice where there is no investment element.
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This article (Inheritance Tax) is intended to provide a general appreciation of the topic and it is not advice.
For more information please contact Nurture Financial Planning Ltd on 01603 673502 or email firstname.lastname@example.org and we will be happy to assist you.
Article expiry: 05 Apr 2018