Inheritance Tax

Rates

The nil rate band for cumulative chargeable transfers in the last seven years is £325,000 (unchanged since 6 April 2009). If one of a married couple/civil partnership did not use the full band on death, the unused proportion increases the nil band of the other spouse/partner if they die on or after 9 October 2007. Gifts above that are charged at the following rates:

Payment

Inheritance Tax (IHT) on a deceased’s estate and on gifts within 7 years of death is generally payable at the end of six months after the month of death, but tax on the estate must be paid before probate is granted, and this may necessitate earlier settlement.

IHT on chargeable lifetime gifts is payable on the later of six months after the month of transfer or 30 April in the next tax year.

Major reliefs

The following transfers are exempt from IHT:

• the first £3,000 gifted in a tax year (unused limit may be carried forward for one year)

   

• small gifts of up to £250 per recipient in a year

   

• normal expenditure out of income

   

• gifts between husband and wife, unless the donor is domiciled in the UK and the recipient is not

   

• gifts between individuals more than 7 years before the donor’s death (while the donor survives, the gift is left out of account as ‘potentially exempt’)

   

• gifts in consideration of marriage – £5,000 from a parent, £2,500 from a grandparent or a party to the marriage, £1,000 from others

  Most business and agricultural property enjoys a 100% relief once it has been owned for two years, although some types of property are relieved only at 50%, and it is important to meet all the conditions.

Pre-owned assets tax

An income tax charge applies to certain arrangements which remove assets from an IHT-chargeable estate but allow the former owner to use or enjoy them.