Inheritance Tax (IHT) is payable on any assets (things you own) above the Nil Rate Band (NRB), which is currently £325,000 per person, anything owned under this amount is not subject to tax but anything over is taxed at 40%.
£325,000 may sound like a lot but if you take into account the value of your Property and any pensions or savings you may have, you could find you quickly exceed that amount!
For example if you own a Property worth £250,000 savings of £20,000 and a Pension worth £100,000 you have assets totalling £370,000.
If £325,000 is taxed at 0% and £45,000 is taxed at 40%, this leaves an IHT bill of £18,000!
There is good news for those who are married or in a civil partnership though:
Firstly if you leave everything to each other upon death 'spousal exemption' applies, which means the estate is not subject to IHT (Any gifts made to anyone other than your spouse will use up some of your NRB allowance)
Secondly any NRB alowance not used after the death of the first partner can be transferred to the surviving spouse meaning a potential combined NRB of £650,000 before IHT is due on their death
However, for unmarried couples this isn't an option, 'spousal exemption' does not apply in this case so IHT would potentially have to be paid on the death of the first partner and again on death of the second partner.
There is some good news though, you can add an 'Inheritance Trust' into your Wills, this would enable you to essentially use each other's IHT allowance upon death by way of a loan.
Contact us for more information on Inheritance Trusts, or for information on Inheritance Tax Planning visit our sister company Holistic Finance Ltd's website to see how they can help.
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