The threshold above which Inheritance Tax (IHT) may become payable has been fixed since 2009 at £325,000 (“the nil rate band”). We know that it will remain frozen at that rate until 2026. With rising property prices over this period, many people’s estates will have grown significantly and many won’t be aware that their estates could now be taxable.
This apparent lack of awareness of liability to IHT is complicated by new reliefs introduced in 2017. These changes permit an additional relief known as the Residence Nil Rate Band allowance. If used in full this can allow an additional £175,000 per person to pass tax free but there are many qualifying conditions. Even if the estate does benefit from this allowance it must be claimed when the Personal Representatives (PRs) are dealing with the estate. There are many hurdles to navigate to ensure this additional allowance applies. Many may think this applies to their estates and it would therefore take them out of liability to IHT but it may well not.
When dealing with estates after death the rules have also changed as to when an IHT return must be submitted. For deaths prior to 2022, every estate would need to submit an IHT return whether or not IHT was payable.
However, the rules changed from the beginning of this year and there’s no longer a need to submit a return in the majority of cases. The rules are complicated as to when a return is needed. But, in the majority of cases this would be when IHT is payable and/or when there’s a claim for the Residence Nil Rate Band.
PRs of estates are “self-assessment taxpayers” and while these new rules may remove the necessity to complete a return in many cases, there’s still a need to go through the exercise of valuing the estate. Once an estate has been valued all the relevant information needs collecting to determine whether or not the PRs need to complete a return.
PRs will still need to keep careful records, especially on the death of a spouse. As this may be needed on a later death; e.g. use of the first spouse’s nil rate band affecting the amount transferable.
Therefore it’s important to remember:
- To plan now to review your IHT liability while you are living. As you may be worth more than you think and your estate might have reached a size where IHT would be payable in the event of your death. Therefore it’s important to take advice to ensure you’re maximising all the IHT allowances available to you.
- Secondly, those who have the responsibility of dealing with an estate should ensure they consider the full value of the assets. Especially whether or not an IHT return is required. They should take advice on the best way of claiming the allowances that are due to the estate. This might involve some post death planning to redirect assets to ensure the best outcome.