The current Inheritance Tax regime was originally introduced by the Conservative government in 1986. This replaced the earlier tax called Capital Transfer Tax. The origins of taxing assets on death go back over 300 years.
Many amendments have been made to the original 1986 Act of Parliament over the years which include the ability to transfer the inheritance tax allowance between spouses (2007), the introduction of the residential nil rate band (2015) and additional tax being attributable to agricultural and business assets (2026). The government is also set to introduce additional inheritance tax on pensions in 2027.
What is the threshold for paying Inheritance Tax?
The basic inheritance tax free allowance (the nil rate band) is set at £325,000. However, additional inheritance tax allowances are available if:
- You leave your estate to your spouse or civil partner (the transferrable nil rate band)
- You leave your home which passes to children or grandchildren (the residential nil rate band).
The maximum inheritance tax free allowance available to a married couple is £1,000,000. This does not include the reliefs available on agricultural and business assets which will mitigate inheritance tax further.
Inheritance Tax is currently charged at 40%.
When is Inheritance Tax payable?
Inheritance Tax attributable to non-property assets (excluding agricultural and business assets) must be paid before you apply for a Grant of Probate. The balance of the inheritance tax can be paid in ten annual instalments, the first one becoming due 6 months after the date of death. Interest on any outstanding inheritance tax (excluding agricultural and business assets) will accrue from 6 months from the date of death.
Can I reduce the Inheritance Tax payable on an estate?
Yes. There are numerous allowances, exemptions and reliefs which can be applied to mitigate Inheritance Tax. In these circumstances we would strongly recommend you take advice from a solicitor.
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Originally established in Kendal in 1871, Arnold Greenwood has been trusted by generations for clear, dependable advice. For advice on Wills, Inheritance Tax Planning, Lasting Powers of Attorney, estates or trusts, contact a member of our team at our Kendal or Grange over Sands office.
