In April 2021, the Inheritance Tax Allowances were set to be increased in line with inflation. However, in his March budget, Chancellor Rishi Sunak confirmed that the current Nil Rate Bands for inheritance tax would be frozen until April 2026. Our Wills and Probate Solicitors discuss what this means for you below. 

Every person is currently entitled to a Nil Rate Band of £325,000 in regards to inheritance tax, which means that if the deceased’s estate is worth less than this amount, and providing that they had not made large gifts during their lifetime or a gift where they reserved a benefit, there would usually be no inheritance tax to be paid on their death. 

 

In addition to this Nil Rate Band, there is an additional tax-free amount available of up to £175,000, known as the Residence Nil Rate Band, when the deceased leaves their property to their direct descendants, such as children, grandchildren, stepchildren, foster children or adopted children. This means that a person’s estate can be worth up to £500,000 before Inheritance Tax would be payable. 

 

If a person’s estate is worth more than the tax-free amount and they have no other exemptions available, Inheritance Tax is payable at a rate of 40%. 

 

For example, Jim’s estate is worth £900,000. He is leaving his property to his children and is entitled to the full Residence Nil Rate Band, and there are no other deductions available. He therefore has a tax-free amount of £500,000. Below, we have calculated the amount of Inheritance Tax due on Jim’s estate: 

 

Value £900,000 

 

Tax-free Bands £500,000 

(Nil Rate Band and Residence Nil Rate Band) 

 

Total Estate subject to IHT £400,000 

 

IHT @ 40% £400,000 x 40% = 

Total IHT payable £160,000 

 

In addition to the available Nil Rate Bands, spouses or civil partners can transfer unused Nil Rate Bands on the second death. 

 

For example, if Jim’s wife had died a few years before his death leaving everything to Jim, his wife’s full Nil Rate Bands could be available on Jim’s death. He could therefore bring the total tax-free amount on his death up to £1,000,000, meaning his Personal Representatives 

 

(the executors named in his Will, or his administrators if he did not leave a Will) may not need to arrange payment of Inheritance Tax on his estate. 

 

If you need to claim a deceased spouse or civil partner’s unused Nil Rate Bands on a non-taxable estate, separate Inheritance Tax forms are required in addition to the standard IHT205, so you should seek expert legal advice to ensure you complete the correct forms, and do not end up paying Inheritance Tax when none is due. In some cases, an IHT400 may be required to claim these Nil Rate Bands, or deal with the non-taxable estate. 

If someone dies, it is imperative that you ensure any Inheritance Tax is paid, if required. Therefore, you should seek expert legal advice from a Wills and Probate Solicitor as soon as possible to ensure that you have correctly valued any assets of the estate, and that you submit the correct Inheritance Tax Accounts to either HM Revenue and Customs or the Probate Registry. 

 

You can contact our team of Wills and Probate Solicitors online, here, or via email at enquiries@mglegal.co.uk to arrange an appointment to discuss your loved one’s estate. 

 

In general, the Inheritance Tax frozen Nil Rate Bands mean that there could be more estates subject to Inheritance Tax over the coming five years, as the bands have not been increased in line with inflation. According to gov.uk, during the tax year 2020 to 2021, HM Revenue and Customs received £5.4 billion in Inheritance Tax, which was an increase of £190 million from the previous year; could this figure increase even more? 

 

Many people take steps to reduce their liability for Inheritance Tax during their lifetime. If you think that your estate could be taxable on your death, seek expert Inheritance Tax advice from a Wills and Probate Solicitor to find out what steps you can take to reduce your liability during your lifetime. 

You may wish to seek legal assistance from our expert Will Drafting team at MG Legal. You can contact us, here, to arrange an appointment at a time that suits you. Our Wills and Probate Solicitors deal with Inheritance Tax as part of making a Will, so can arrange to discuss the potential Inheritance Tax liability on your death. In addition, our team may suggest seeking expert financial advice in addition to making a Will, to assist with your position on your death. 

 

Every person’s estate is different and therefore, whilst the information in this blog can be a good general starting point, you should always seek independent, tailored legal advice to ensure your estate is dealt with correctly on your death. Find out more about Inheritance Tax from our specialist Wills and Probate Solicitors, here, and give our team a call, here, to get the ball rolling today.