• Skip to primary navigation
  • Skip to main content
  • Skip to footer

McGarrie Vahey & Partners

Wealth Management

01625 522666
  • Homepage
  • About
    • Our Team
    • Our Partners
    • Terms of Use
    • Our Fees
  • Wealth Management
    • Inheritance
    • Generational
    • Divorce Matrimonial
    • Long Term Care
    • Personal Injury Trusts
  • Retirement Planning
    • Pension Accumulation
      • Self-Invested Personal Pensions (SIPPs)
      • Personal Pension
      • Small Self-Administered Scheme (SSAS)
    • Pension Income
      • Annuity
      • Drawdown
  • Protection
    • Relevant Life
    • Term Assurance
    • Whole of Life
    • Critical Illness
  • Contact
    • North West
    • London
01625 522666

McGarrie Vahey

  • Homepage
  • About
    • Our Team
    • Our Partners
    • Terms of Use
    • Our Fees
  • Wealth Management
    • Inheritance
    • Generational
    • Divorce Matrimonial
    • Long Term Care
    • Personal Injury Trusts
  • Retirement Planning
    • Pension Accumulation
      • Self-Invested Personal Pensions (SIPPs)
      • Personal Pension
      • Small Self-Administered Scheme (SSAS)
    • Pension Income
      • Annuity
      • Drawdown
  • Protection
    • Relevant Life
    • Term Assurance
    • Whole of Life
    • Critical Illness
  • Contact
    • North West
    • London
01625 522666

Inheritance

As with most good plans, it will pay to start thinking about inheritance tax early.

The rules can be complex and change regularly, so you will need to review your circumstances often. It may be wise to speak to a financial adviser about how best to approach inheritance tax. With the right planning, your bill could be reduced or even mitigated completely, meaning your loved ones can enjoy the most of their inheritance.

What is inheritance tax?

Inheritance tax (IHT) is calculated and payable on your estate upon death. Your estate includes everything you have of value, such as your home, jewellery, savings and investments, cars and even works of art.

How is inheritance tax calculated?

Inheritance tax will usually be payable if your estate exceeds the nil-rate threshold, which will be fixed at £325,000 until 2021. Below this, your estate can be passed to your beneficiaries free of tax. If you own your home and plan to pass it on to your blood relatives when you die, then all or part of this may fall outside of your estate when calculating inheritance tax.

It’s also the case that anything left to either your spouse or civil partner will be exempt from inheritance tax, regardless of whether the value exceeds your nil-rate threshold. The same applies to exempt beneficiaries, such as charities. 

The value of your estate that is above the nil-rate threshold of £325,000 will be taxed at 40%. For example, if your estate comes to a total of £400,000, the nil-rate threshold will shield the first £325,000 from inheritance tax, but the remaining £75,000 will be taxed at 40%.

By leaving 10% or more of your estate to charity, it will usually qualify for a reduced rate and as such, the amount of inheritance tax due will be 36%.

Note: Rates and thresholds are based on current UK legislation and are subject to change.

What is the residence nil-rate threshold, and how is it different to the nil-rate threshold?

If you are giving away your home to your children (including adopted, foster and stepchildren) or grandchildren, you may qualify for the residence nil-rate threshold before inheritance tax becomes due. This will be an additional;

  • £125,000 in 2018 to 2019
  • £150,000 in 2019 to 2020
  • £175,000 in 2020 to 2021

It will then increase in line with the Consumer Prices Index (CPI) from 2021 to 2022 onwards. The residence nil-rate threshold will only apply up to the value of your property.

If you qualify, your inheritance tax threshold for the 2019/20 tax year will be £475,000 (£325,000 + £150,000). The additional threshold will also be available if you have downsized or ceased to own a home on or after 8 July 2015, if the former home would have qualified for the additional threshold. There will be a tapered withdrawal of this threshold for estates with a net value of more than £2 million, this will be at a rate of £1 for every £2 over the threshold.

Note: Rates and thresholds are based on current UK legislation and are subject to change.

Using a spouse’s unused nil-rate threshold

How is inheritance tax paid? 

Your executors or legal personal representatives must calculate the value of your estate, submitting full details to HM Revenue & Customs (HMRC). Typically, they will then have six months from the end of the month of death to pay any inheritance tax due. Access to the estate can’t be granted to the beneficiaries until this has been done, meaning the release of your estate could be delayed if your loved ones don’t have the funds to pay the inheritance tax bill.

If inheritance tax has to be paid with regards to land, business assets or property, it’s possible to do so in instalments. In certain circumstances, your beneficiaries will then have up to 10 years to pay the tax owed, plus interest.

Why is it important to plan ahead for inheritance tax?

While the nil-rate threshold of £325,000 may seem like a lot, your estate includes all of your possessions, such as your home, jewellery, cars, antiques and savings. In order for your loved ones to benefit fully from your assets, it’s important to consider the impact that inheritance tax could have on your estate, and how you can protect against it.

The rules and exemptions around inheritance tax can change regularly, meaning so will the opportunities available to you. Although many people view the inheritance tax as unfair, with the right planning, it can often be reduced or mitigated completely.

How can I limit my inheritance tax liability? 

It should be pointed out that inheritance tax is an extremely complicated area and there can be severe penalties for breaking tax rules.

You should speak to a financial specialist before taking any action. Our experienced independent financial advisers can create an inheritance tax plan that is tailored to your specific circumstances. There are many ways in which a financial adviser will be able to ensure that your loved ones receive the most of their inheritance.

Contact our expert advisers today

Contact us

McGarrie Vahey & Partners

The guidance and/or advice contained within this website are subject to the UK regulatory regime, and are therefore targeted at consumers based in the UK.
The Financial Conduct Authority does not regulate tax advice or trusts.
Please note that the value of an investment and the income from it could go down as well as up.
The Financial Ombudsman Service is available to sort out individual complaints that clients and financial services businesses aren’t able to resolve themselves. To contact the Financial Ombudsman Service please visit www.financial-ombudsman.org.uk
McGarrie Vahey & Partners (Financial Planning) is the trading name of MVA Holdings Limited.

Company Registered in England No. 3722158.
Authorised and regulated by the Financial Conduct Authority No. 456836.

Copyright © 2022 · McGarrie Vahey & Partners · Privacy Policy · Site Map · Log in

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish.AcceptReject Read More
Privacy & Cookies Policy

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled

Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.

Non-necessary

Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.