There may be several allowances to be claimed on death, depending on your circumstances.
The first allowance available to us all is called the ‘Nil Rate Band’ (NRB). This means that the first £325,000 worth of assets is taxed at 0% i.e. is free from IHT. If your estate at death is worth less than this, there is no IHT to pay but bear in mind that this could be affected if you have made significant gifts in lifetime.
If you have given away assets during your lifetime but you continued to benefit from then, you need to be aware that (for tax purposes) HMRC will treat those asset as still being owed by you. This is due to special rules on ‘Gifts with Reservation of Benefit’. A typical example might be a parent who gives away a property but continues to live in it or perhaps visit it as a holiday home and without paying a market rent to do so.
There is a further allowance called the ‘Residence Nil Rate Band’ (RNRB). This applies if your estate includes a home which is passed on to direct descendants such as children, grandchildren, spouses, and civil partners.
In the current 2020/2021 tax year, the availability of the RNRB means that you can pass another £150,000 tax-free. However, this allowance is not available to everybody and so we recommend that you ask us for advice on how best to maximise your available allowances.
If you estate is worth more than the available allowances, your estate pays IHT at the rate of 40% on the excess above those allowances.
The charge to IHT can therefore be significant and we recommend that you seek advice from us as to how to mitigate the IHT.