Inheritance Tax Allowances

One of the keys to a successful future in business and in life

While it is a requirement that inheritance tax is paid if a person's estate is worth more than a certain threshold, there are some allowances - or exemptions - that mean inheritance tax does not have to be paid.

At Equilibrium, we can advise you regarding these allowances and help to ensure that you or your family do not miss out unnecessarily.

Get in touch with our specialists today to find out more about the allowances that you may be able to take advantage of in order to reduce your inheritance tax bill. Simply call us on 0808 156 1176 or complete our online contact form and a member of the team will be in touch to discuss your situation in more detail. We provide services throughout the North West and have offices in Wilmslow and Chester.

The current allowance whereby no inheritance tax can be charged is on the first £325,000, per person, of your estate. Your estate is calculated as the value of your total assets that you leave behind when you die and therefore if your estate is worth less than £325,000 then you will incur no inheritance tax as you pass your assets on to your loved ones. However, the tax will stand at 40% of any value greater than this amount.

Potentially Exempt Transfers

There are ways, however, that you can look to reduce the amount of inheritance tax you pay. One of the more common ways to pass on your money is by way of gifts, and you can find out more about how to do this on our gifts page.

What's more, a gift can become exempt from inheritance tax depending on how long you continue to live for after you have given it. If you live for seven years after making a gift, it will become fully exempt from the tax, and during those seven years it is known as a 'potentially exempt transfer' - or PET. If you pass away during those seven years, the exemption will fail.

A gift will not qualify as a PET, however, if it is something in which you still have an interest, such as a home that you continue to live in.

Giving to Charity

A common way to reduce the inheritance tax payable is to give your money to charity. It is possible to reduce the inheritance tax rate on some assets from 40% down to 36% should you leave 10% or more of your estate's net value - a reduction that could make a significant impact on the overall amount you pay.

Types of Tax Allowance

Other inheritance tax exemptions can include:

  • Business - You may be able to receive either 50% or even 100% tax relief on your business, depending on the type of business and the model of ownership
  • Heritage - Relief from inheritance tax may be available if you own either a building or piece of land that could be deemed as being of historic, artistic or national scientific importance
  • Agricultural - Farms can be exempt from inheritance tax when they are passed on. It is important to note, however, that some farm assets - such as farming equipment - may not be exempt
  • Woodland - The main way that inheritance tax can be avoided for woodland is if the woodland is commercially managed with a view to generating timber, then it could qualify as a business asset attracting relief, as noted above

Other exemptions from inheritance tax include any instances in which a person dies while performing an occupation deemed as risky, such as firefighter, police officer or someone serving in the armed forces. If you are married and are domiciled in the UK, any assets that you leave to your spouse are also exempt from the tax.

Main Residence Nil-Rate Band

The main residence nil-rate band was introduced in 2017 and aimed to bring in an additional nil-rate band when a residence is passed on death to a direct descendant. It will likely affect those with direct descendants who have an estate - which includes a main residence - and assets totalling more than the nil-rate band of £325,000. It will also likely affect personal representatives of people who have passed away.

The new nil-rate band will be as follows:

  • 2017 - 2018: £100,000
  • 2018 - 2019: £125,000
  • 2019 - 2020: £150,000
  • 2020 - 2021: £175,000

From 2021 to 2022 and onwards, the band will increase in line with the Consumer Prices Index, with any unused nil-rate band transferred to either a spouse or civil partner.

Contact Us Today

Speak to one of our advisers to find out more about inheritance tax and the various exemptions available. We can talk through your situation and answer any questions you may have. We have clients from in and around Manchester and Cheshire and throughout the North West. Either call us on 0808 156 1176 or complete our online enquiry form and we will give you a call back.