Inheritance Tax and Lifetime Planning
Inheritance Tax is a tax that has to be paid after you die. The amount of inheritance tax that has to be paid is currently charged at 40% on the value of all your assets over the nil rate band allowance.
For example, your net assets are worth £425,000, if the nil rate band is still at the current value of £325,000 when you die, your estate will be charged 40% of £100,000 or £40,000.
Various rules can reduce the amount of inheritance tax that has to be paid on the value of certain assets, and because your estate can pass tax free to your spouse or civil partner there is currently a joint allowance of £650,000.
From April 2017 there is an additional tax-free allowance for people who own a home. This is called the ‘residence nil rate band’. It will be gradually phased in over the next 4 years and by 2020 will be worth an additional £175,000 per person. The existing allowance of £325,000 combined with the additional £175,000 means a new allowance for property owners of £500,000 – or £1m for couples.