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How Much Can You Pass On Without Paying Inheritance Tax?

Losing a loved one is already a difficult time, and when conversations about inheritance tax enter the situation, it can feel overwhelming and very complicated.

There are certain rules surrounding this tax, one of which allows a certain amount to be passed on without being subject to tax. But how much can be passed down before tax, and what are the implications of it?

Inheritance tax planning can be incredibly beneficial as it will allow you to put in place strategies to minimise the payable amount and work to make it as simple as possible for those you are leaving behind.

Lester Brunt are experts in dealing with inheritance tax and working to mitigate the payable amount.

What Are The Rules?

There are two inheritance tax allowances that an individual can potentially benefit from referred to as a Nil Rate Band, currently £325,000 which can be set against any of the assessable assets in the estate of that individual. On top of this is a separate Residential Nil Rate Band, currently £175,000 which is available when a qualifying property is left to a spouse, direct line descendent or adopted child. Meaning that assets to the value of £500,000 can be passed to beneficiaries free from inheritance tax. 

In the case of a married couple or civil partnership where the first to die leaves their assets directly to their spouse or civil partner and therefore does not make use of either allowance then the unused allowance also passes to the surviving spouse or civil partner meaning that at second death assets to the value of £1,000,000 can be transferred free from inheritance tax.

Asset values above the appropriate inheritance tax free allowance that are not otherwise exempt are subject to tax at the rate of 40%.

What Assets Are Included In Your Worth?

Assets used to work out how much inheritance is payable don’t just cover money in the bank.

Main assets include:

  • Property – any properties in the UK and abroad owned by the deceased.
  • Bank and Building Society Accounts – balances within any current and savings accounts
  • Investments – the value of stock and shares, bonds, and unit trusts
  • Savings – money held in savings accounts or other financial instruments
  • Vehicles – the value of vehicles owned, such as cars, motorbikes and boats
  • Personal Belongings – valuables, jewellery, art, antiques, and other personal belongings
  • Life Insurance Policies – some life insurance policies may be included if they are not written in trust
  • Gifts and Transfers – gifts made by the deceased within seven years before their death may be included.

How To Reduce Inheritance Tax

There are a few ways that you can reduce the amount of inheritance tax paid on your estate as it is passed on.

On top of regulations allowing an estate to be passed to a partner tax-free, you could choose to divide your worth between your spouse and others. With this, you can transfer part of your threshold over to your partner. For example, if your estate is worth £600,000, you can leave 40% of the threshold to your children and the remaining 60% to your spouse.

This 60% can then be added to your spouse’s threshold upon their death, increasing the amount that they can pass down tax-free.

The Residence Nil Rate Band increased the threshold if assets were passed down to certain members of the family, namely biological children, adopted, foster/stepchildren, children under their guardianship, grandchildren, or great-grandchildren and their spouses/civil partners.

Additionally, gifting money to loved ones while you are alive will reduce your worth, therefore, reducing the taxable amount needing to be paid. However, should you die within seven years of gifting money, this amount will not be exempt and will be included in the total sum of your worth unless Taper Relief can be applied.

These are just a few strategies that can be used to reduce inheritance tax, explained simply. Of course, there are further details to include, which is why employing a wealth management company to help navigate this is worthwhile.

Get Expert Advice And Guidance

Lester Brunt has a team of qualified advisers who can advise on your succession planning and put in place a strategy that suits you and your loved ones to reduce the amount of inheritance tax paid.

We know that there isn’t one solution for everyone which is why we sit with you to understand what is important to you before offering advice and solutions.

Speak to our experts to learn more about how we could help you reduce your inheritance tax. Book a no-obligation consultation by calling us on 01202 695 801 or completing our contact form, and we will get back to you as soon as possible.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Written By Stephen Birrell

Chartered Financial Adviser

Lester Brunt Wealth Management

Lester Brunt Wealth Management is a trading name of Lester Brunt Wealth Management Ltd

SJP Approved 20/03/2024