Inheritance tax allowances, reliefs, exclusions and exemptions
Inheritance tax is primarily a charge made on your assets at the time of your death. However, in addition:
- If you make gifts in the 7 years up to your death, these may also incur an inheritance act charge.
- If you give an asset away(such as your house) but still use it, inheritance tax may also be due (see ‘Gifts with a reservation of benefit‘).
Not all gifts will result in an inheritance tax charge as there are various allowances that can be used.
There is NO inheritance tax payable between spouses in Great Britain however, unmarried partners are not given the same benefit. The inheritance tax burden will always have to be calculated when passing your estate down to your children or other beneficiaries.
Inheritance tax allowances
The main inheritance tax allowance is £325,000 – this is called the ‘nil-rate band’. No inheritance tax is payable on assets you own at the time of your death up to this value. This rate will be in force until at least 5 April 2022.
In addition, you have a ‘Residence Nil Rate Band’ (RNRB). This can be used where you give property in your Will to a direct descendant (for example, a child or grandchild).
Currently, the RNRB is £175,000 (2020/21 tax year).
Each person, therefore, has an allowance of up to £475,000 on which they will pay no inheritance tax (depending on how much of the RNRB they are able to use).
Inheritance tax is charged at 40% on anything over this amount.