Inheritance Tax Threshold in the UK
One of the most important aspects of estate planning is figuring out what the inheritance tax threshold is in the UK. This is a tax that is charged on money and assets that belong to a person and are passed on after they die. Understanding the inheritance tax to pay and IHT thresholds can help you manage your finances and plan for the future, both of which are essential steps in estate planning.
What is the threshold for inheritance tax
The worth of your estate—everything you own when you pass away—is the basis for calculating inheritance tax.
Inheritance tax threshold 2022
Everyone receives a tax-free allowance from the government called the nil-rate band (NRB), which is presently set at £325,000.
This threshold had been set until 2026, but in his Autumn Statement in November, the Chancellor raised it to 2028.
No IHT is owed if the worth of your estate is less than this amount.
But HMRC imposes a rate of 40% on the surplus if your estate is worth more than the nil-rate band.
Inheritance tax is set at 50% for an estate that is above £2m. This means that for every £2 inherited after £2m, a tax of £1 will be paid.
RNRB – Residence Nil-Rate Band
If certain requirements are satisfied, an additional NRB known as the RNRB may be made available in addition to the regular NRB on deaths after April 6, 2017.
If the surviving husband or civil partner passes away after April 5, 2017, married couples and civil partners may transfer any unused RNRB, regardless of when the first member of the relationship passed away. Be aware that the term “transferable RNRB” is incorrect; the proper word is “brought forward” allowance.
In general, RNRB will be available if a person leaves their house to their children or other direct descendants and it is part of their estate. The term “closely inherited” property is used in the law.
How the thresholds changed over the years
This is how the nil rate band or the inheritance tax threshold has revised over the last decade.
| From | To | Threshold (nil rate band) |
|---|---|---|
| 6 April 2009 | 5 April 2026 | £325,000 |
| 6 April 2008 | 5 April 2009 | £312,000 |
| 6 April 2007 | 5 April 2008 | £300,000 |
| 6 April 2006 | 5 April 2007 | £285,000 |
| 6 April 2005 | 5 April 2006 | £275,000 |
RNRB
Over four tax years, the RNRB was gradually implemented beginning on April 6, 2017.
| From | To | Threshold (nil rate band) |
|---|---|---|
| 6 April 2021 | 5 April 2026 | £175,000 |
| 6 April 2019 | 5 April 2020 | £150,000 |
| 6 April 2018 | 5 April 2019 | £125,000 |
| 6 April 2017 | 5 April 2018 | £100,000 |
| 6 April 2005 | 5 April 2006 | £275,000 |
Inheritance tax thresholds may change further depending on the consumer price index in the UK. This may be a problem for the citizens of the UK amidst rising residential prices.
Evaluate your estate timely to avoid a huge IHT bill.
How inheritance tax works in the UK
Inheritance Tax in the UK is a tax that is levied when someone dies and leaves the property, such as cash or property, to another person.
The amount of inheritance tax that a person will have to pay depends on how much they are worth at the time of their death.
The government of the UK has made provisions for relief and exemptions to avoid inheritance tax in the UK.
How does the UK set Inheritance Tax Thresholds
The UK inheritance tax thresholds are decided by the Government of the UK based on the ongoing consumer price index.
Why Inheritance Tax is imposed In The UK
There are three main reasons why inheritance tax is imposed in the UK.
The first is to ensure that those who inherit money from a deceased person don’t benefit from that money without contributing anything back to themselves.
The second reason is to ensure that the wealth of the country stays in the country and isn’t siphoned off to other countries.
The third reason is to create a level playing field for people who didn’t inherit wealth or property from their parents or other relatives.
Who Is Liable to Pay Inheritance Tax?
Inheritance Tax is a tax that is levied in the United Kingdom on the inheritance of a deceased person’s estate. The deceased person’s spouse, civil partner, and children who are under the age of 18 at the time of death are all considered as beneficiaries for Inheritance Tax purposes. The beneficiaries are liable to pay the IHT bill.
There are different inheritance tax thresholds in the UK, depending on the value of the estate that is left to someone after they die. The tax payable on an inheritance is based on how much of the estate was inherited.
Usually, the IHT bill is paid from the estate.
What If You Don’t know the Value of Your Inheritance?
If you don’t know the value of your inheritance, you need to get expert help. There are many ways to calculate the value of an inheritance and a number of factors can affect it, such as the age of the estate and whether any beneficiaries have been named.
If you’re married, your spouse may be able to help with the calculation. They may also be able to provide information about any assets that are automatically included in the inheritance. If there are any questions or doubts about the value of your inheritance, it’s best to speak to an inheritance tax expert in the UK.
Conclusion
If you’re an individual who owns a property in the UK, it’s important to know your inheritance tax thresholds. These are the amounts of money that will be exempt from death duties (the taxes paid on estates over a certain value). If you’re not sure whether or not your property falls within one of these thresholds, it’s best to speak to an estate planning specialist. You may be able to avoid inheritance tax altogether using the right mix of estate planning instruments.