What Are the Current Inheritance Tax Allowances?

Note: The following article is part of our Complimentary Articles Series, designed to provide additional insights and detailed information on specific topics within estate planning.

In conjunction with the following article, we recommend you review the following pillar articles to understand inheritance taxes comprehensively.

• What is Inheritance Tax (IHT)?
• How Do I Pay Inheritance Tax to HMRC?
• How Much Inheritance Tax Do I Have to Pay?
• When Does IHT Need to Be Paid?

INTRODUCTION

The task of navigating the complexities of Inheritance Tax (IHT) in estate planning can be made easier with a clear grasp of the current IHT allowances.

These allowances are intended to provide some exemption from IHT, allowing people to leave their Beneficiaries with a portion of their Estate tax-free.

The article provides executors and beneficiaries with an overview of the current IHT allowances. We encourage you to read this article in conjunction with related IHT articles.

THE NIL RATE BAND

The cornerstone of IHT allowances is the Nil Rate Band (NRB), which currently stands at £325,000 per person. Under the NRB:

• No IHT is due on the value of the Estate up to this threshold.

• Any value above £325,000 is typically subject to IHT at a rate of 40%.

THE RESIDENCE NIL RATE BAND (NRNB)

In addition to the NRB, there is the Residence Nil Rate Band (RNRB), which offers an additional allowance when a residence is passed on to direct descendants, such as children or grandchildren.

According to the latest guidelines:

• The RNRB provides an additional £175,000 per person.

• For Individuals: This can raise the IHT-free threshold to £500,000 for individuals.

• For Married Couples of Civil Partners: This can raise the IHT threshold up to £1 million for married couples or civil partners when combined with the NRB and the transferable allowance between spouses.

TRANSFERRABLE ALLOWANCES

The allowances may be transferred between spouses and civil partners. This effectively doubles the threshold for surviving partners.

If the first partner to die does not use up their NRB, the remaining unused percentage can be transferred to the surviving partner.

This allows for a potential combined threshold of up to £650,000, or up to £1m when including the RNRB. 

OTHER ALLOWANCES

Your IHT liability can be further reduced through several other allowances, such as the following:

• Annual exemption of £3,000 for gifts.

• Small gifts exemption of up to £250 per person per year.

• Gifts made in consideration of marriage or civil partnership, which vary depending on the relationship with the giver.

• Potentially Exempt Transfers ("PETS"), where gifts are made more than seven years before the donor's death.

Need to know more?

Regulations and allowances can change frequently, and we advise you to stay informed by consulting these pages often and checking in with your tax adviser. Alternatively, feel free to reach out to us for a free, no-obligation call, and we'd be happy to discuss your options. We'll also put you in contact with one of our specialist advisers in cases where specific tax advice is required.

Book a callback, and we'd be happy to arrange a no-cost, no-obligation discussion with you to lay out the options available.

Alternatively, call us on 01233 659 796.

Or reach out to us here.