Inheritance Tax (IHT) is a tax on the estate of a person who has died. This relates to their property, money and possessions, however it’s only payable above a threshold.
Usually, this threshold is £325,000.
As such, normally, there’s no Inheritance Tax to pay if the value of the estate (meaning the property, money and possessions) is below this threshold.
Alternatively, if everything above this threshold is left to a spouse, civil partner, a charity or a community amateur sports club, then there will usually be no IHT to pay.
It may also be possible to increase the threshold.
READ MORE: Inheritance Tax UK: How to pay an IHT bill and rules on probate
For instance, if a person gives away their home to their children or grandchildren, the threshold can increase to £500,000.
This has recently risen, as Jonathan Scott, Tax Partner at Haines Watts, explained.
Speaking to Express.co.uk, he said: “The main residence nil rate band (‘MRNRB’) has increased from £150,000 to £175,000 therefore potentially saving those who own their own homes a further inheritance tax saving of £10,000.
“The Nil rate band of £325,000 remains unchanged and is still frozen at this level until April 2021.
“With the increase in MRNRB it now allows for two individuals in a marriage or civil partnership being able to pass on up to £1million of their estate tax free to their direct descendants and beneficiaries (325,000 x two plus the additional residence nil rate band of 175,000 x two).”
With the main residence nil rate band having recently risen, some may wonder whether it will change again.
For Mr Scott, the answer is unknown, but he’s suggested it may instead be quite the opposite, following the coronavirus crisis.
“It is currently difficult to say whether it will rise again but given the current landscape and government debt due to COVID-19 it could be an area where the government looks to claw back some money and therefore reduce the relief as opposed to increasing it,” he said.
Usually, there is no Inheritance Tax to pay on small gifts that a person makes out of their normal income.
Examples of these are Christmas or birthday presents, and they’re known as “exempted gifts”.
Spouses or civil partners pay no Inheritance Tax on gifts given to one another.
As long as they live in the UK permanently, a person can give their spouse or civil partner as much as they like.
However, some gifts to others will count towards the value of the estate.