Inheritance Tax (IHT) can be a difficult concept to comprehend. To put it simply, IHT is a tax that is paid upon an estate of someone who has died, however, it does not apply to all estates. Any part of an estate that passes to a spouse/civil partner or a charity is exempt from IHT. There are also a number of organisations that are typically exempt from the tax, including community amateur sports clubs.
Nil Rate Band (NRB)
IHT is paid on an estate that exceeds the value of the NRB, also known as the Inheritance Tax threshold, which is currently set at £325,000 per person. Above this threshold, IHT is currently paid at a rate of 40% except for estates that give 10% or more of their net estate to charity(s), in which case a reduced rate of 36% will be applied. On the second death of a married couple/civil partnership, that person’s allowance plus the pre-deceased spouse/civil partner’s unused allowance can be claimed. If the first spouse/civil partner to pass away has passed everything to their partner, their full £325,000 NRB can be used upon the second death. However, if on the first death some of the Deceased’s allowance was given elsewhere (e.g. children), only the difference can be claimed.
Residence Nil Rate Band (RNRB)
Since 2017, there is also an additional NRB that can be applied for when a property forms part of the estate – known as the Residence Nil Rate Band (RNRB). This is subject to specific rules set by HMRC for when this applies. The current threshold, due to remain in place until 5th April 2026, is £175,000. Even if a house was sold prior to death (but after 8th July 2015), there may still be some RNRB available to reduce any Inheritance Tax that may be payable.
Get in touch if you have questions about Inheritance Tax.
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