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What is IHT?

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By Jessica Huczmann, Solicitor in our Wills and Probate Team

Reading time: approximately 4 minutes

 

What is IHT?

IHT is the abbreviated term used for Inheritance Tax. This is a tax on the estate of someone who has died.

There is usually no tax to pay if the net value of the estate is less than £325,000 (called the nil rate band) and there are a number of exemptions and reliefs that may apply. You may also be able to benefit from your late spouse or civil partner’s nil rate band.

What is the inheritance tax rate?

If inheritance tax is payable the rate is 40%.

What is the reduced rate of IHT?

There is a reduced rate of 36% if you leave 10% or more of your net estate to charity.

Can I use the nil rate band of my spouse or civil partner?

If you are married or in a civil partnership, any nil rate band that is not used by the first to die can be transferred to the survivor to a maximum of £650,000.

What if my partner and I are not married or in a civil partnership?

Nil rate bands are only transferrable between spouses and civil partners.

What is the spouse/civil partner exemption?

Any assets that you give to your spouse or civil partner either during your lifetime or in your Will are exempt from inheritance tax and do not affect your nil rate band.

What about the residence nil rate band?

This is additional to the £325,000 nil rate band and is currently worth up to £150,000 per person. It will eventually be worth up to £175,000. 

Like the nil rate band, any unused residence nil rate band can be added to a surviving spouse/civil partner’s at the time of their death.

The residence nil rate band applies to your family home as long as it is left to your issue (children/grandchildren etc.) and, broadly speaking, there is no trust involved.