Finance Monthly. 65 Banking & Financial Services For ease, I’ll say it is payable upon death when assets pass by Will or Intestacy to a nonexempt beneficiary. An exempt beneficiary is, in essence, a spouse or UK-registered charity. The first £325,000 (frozen since 2009 and until 05 April 2028, at the earliest) is known as the Nil Rate Band (NRB), which isn’t an exemption but a band of net assets (total value of the estate less liabilities) charged at 0%. Everything above this is taxed at 40% (36% if at least 10% of the taxable estate goes to UK-registered charities). A Residence NRB was introduced in April 2017, which now increases the standard NRB by up to £175,000 if the share in a residence passes to a lineal descendent – basically children, including stepchildren, and all subsequent generations. This additional NRB is capped at the value of the interest in the property or £175,000, whichever is the lower. Also, it starts to reduce by £1 for every £2 the total estate exceeds £2m. At £2.35m, the Residence NRB has gone completely. Unused NRBs pass from one spouse to the other, so for someone with a property valued more than £350,000, with a total estate less than £2m, the total NRB on the second death could be £1m. The latest statistics from HMRC for the year ending 05 April 2021, show that only 3.73% of UK estates pay IHT, which has been a consistent figure in recent years. For that 3.73% IHT was onerous, with the average IHT bill being £209,000. What are some common mistakes people make when it comes to planning their estate and inheritance tax, and how can they avoid them? We’re back to “failing to plan”, which involves several issues. In some ways, wealth can almost “creep up” on people, particularly in later life – accumulated savings, increase in property value, pension lump sum, an inheritance – and, without realising it, IHT rears its ugly head. There is also the issue of not knowing what you don’t know, so some people, even if they are aware that they have an IHT or long-term care problem, don’t know that there are things they can do to protect their family’s inheritance. Those that do realise they have an issue often leave it too late to seek guidance. For example, the simplest way to save IHT is to give away surplus wealth during your lifetime. At the point of making a cash gift, there are no tax implications for either the Donor or the Donee, regardless of the amount given away. However, for the gift to be fully effective for IHT purposes, the Donor must survive for 7 years from the date of the gift. If they don’t, the value of the gift is added back into the IHT calculation upon death. Consequently, seeking advice in your late 70s or later greatly limits the options. I say, “cash gift”, because a gift of an asset subject to Capital Gains Tax (CGT) – a buy-to-let property, for example – constitutes a disposal for GGT and could trigger an immediate tax liability. How has the landscape of estate planning changed in recent years, and what should people be aware of looking forward to, particularly with a likely change in government and, therefore, policies at the next election? IHT was introduced in 1984 and the broad principles remain unchanged, but the key landmarks Unused NRBs pass from one spouse to the other, so for someone with a property valued more than £350,000, with a total estate less than £2m, the total NRB on the second death could be £1m.
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