Inheritance tax (IHT) is often referred to as the "voluntary tax" because, with careful planning, it's possible to mitigate its impact. Two key components of this planning in the UK are the Nil Rate Band and the Residence Nil Rate Band. Understanding these allowances can be crucial in maximising the wealth you pass on to your loved ones.
The Nil Rate Band is the threshold below which an estate has no IHT to pay. As of the current tax year, the Nil Rate Band is £325,000 per person.
Individual Allowance: Each individual has their own Nil Rate Band.
Transferability: Any unused Nil Rate Band can be transferred to a surviving spouse or civil partner, effectively doubling the allowance for the couple.
Lifetime Gifts: The Nil Rate Band is applied to the estate and any gifts given in the last seven years of life.
The Residence Nil Rate Band is an additional allowance introduced to make it easier to pass on the family home without incurring IHT. The current allowance is £175,000 per person.
Qualifying Conditions: The allowance applies when the family home is passed on to direct descendants, such as children or grandchildren.
Transferability: Like the Nil Rate Band, any unused Residence Nil Rate Band can be transferred to a surviving spouse or civil partner.
Downsizing: Even if you downsize or sell your home, you may still be able to benefit from the Residence Nil Rate Band.
Strategic Planning: An IFA can help you formulate a comprehensive IHT strategy that utilises both the Nil Rate Band and the Residence Nil Rate Band effectively.
Gift Planning: An IFA can advise on how to make gifts during your lifetime in a way that maximises your allowances.
Trust Formation: An IFA can guide you through the complexities of setting up trusts to further mitigate IHT.
Understanding the Nil Rate Band and Residence Nil Rate Band can significantly reduce the IHT liability on your estate, allowing you to pass on more wealth to your loved ones. However, IHT planning is a complex area that requires careful consideration and expert advice.
If you're concerned about the potential impact of IHT on your estate, we're here to help. Contact us today to discuss your IHT planning options and how we can assist you in maximising your allowances.
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Note: This page is for information purposes only and should not be considered as financial advice. Always consult an Independent Financial Adviser for personalised financial advice tailored to your individual circumstances.