Inheritance tax has been the subject of much conjecture, with overhauls suggested in the lead-up to almost every recent Budget.

Various chancellors have so far resisted temptation to tinker with the inheritance tax system, although it seems likely the winds of change will blow through in the near future.

Inheritance tax is levied on your estate – which includes any properties, investments, money or possessions – when you die.

While it’s not a tax that will directly affect you, it will affect any beneficiaries you have as any liability is deducted from the value of your estate before it’s distributed.

For this reason, it’s essential to start taking charge of planning your estate long before the grim reaper comes knocking.

Nil-rate band and tax rate

Inheritance tax is charged at 40% when the value of an estate exceeds £325,000. All estates worth less than this threshold will be tax-free.

For example, your estate is worth £600,000 and the tax-free threshold is £325,000. Inheritance tax would be charged at 40% on £275,000, leaving a potential bill of £110,000 on your estate.

The nil-rate band is transferable between spouses and civil partners, so it’s possible to double the tax-free threshold on your estate to £650,000 if your partner dies.

Residence nil-rate band in 2019/20

If you leave your home to your children or grandchildren, you can claim the residence nil-rate band which increases your tax-free threshold to £450,000 in 2018/19.

This is because the residence nil-rate band, which stands at £125,000 in 2018/19, works on top of the £325,000 basic nil-rate band.

It has been increasing by £25,000 for each individual since its introduction in April 2017, at which point the threshold was set at £100,000 per person.

From April 2019, you’ll be able to pass on £150,000. Your spouse or civil partner has the same allowance, potentially doubling what you can pass on to £300,000 in 2019/20.

Individuals who die in 2019/20 will be able to leave their family home worth up to £475,000 to any child or grandchild without their estate being subject to inheritance tax.

A surviving spouse or civil partner can claim any unused percentage of the residence nil-rate band, enabling you to potentially double your allowance – to £950,000 in 2019/20.

What does the future hold for inheritance tax?

Chancellor Philip Hammond wrote to the Office for Tax Simplification (OTS) earlier this year to request a review of the inheritance tax system.

The OTS recently revealed its response, which calls for a digital system to be adopted for inheritance tax amid concerns the current form-filling system is too complex.

To simplify the process, the OTS would like to see a “fully integrated digital system for inheritance tax ”, including the facility to file an application for probate.

Contact us

Inheritance tax forms a large part of our personal tax service. For expert help with planning your estate, contact us on or call 01363 773191.

Christmas hours

Our office will be closing for Christmas at 2pm on Friday, 21 December 2018.

We will be open between 9am and 1pm on 27, 28 and 31 December 2018, before business as usual resumes at 9am on Wednesday, 2 January 2019.

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