Inheritance tax

Inheritance tax (IHT) is a tax that is potentially charged on an individual’s estate upon their death. Your “estate” is generally defined as the value of your assets, excluding most pensions, plus most gifts made in the preceding seven years, minus any outstanding liabilities/debts.

Everyone has a basic IHT allowance of £325,000. If you own your property and have lineal descendants e.g. children or grandchildren, that will inherit, your estate may also claim an additional allowance called the Residence Nil Rate Band, worth a further £175,000, subject to various conditions.

‘Assets inherited by a spouse are typically exempt from IHT, and the surviving spouse’s estate can usually claim the unused allowances of their late spouse/ civil partner on their later death,’ says Joanna.

Relief may also be available to claim on agricultural land/assets and on business interests/assets, subject to various conditions.

Gifts to charities are typically exempt from tax.

Assets in excess of the available allowance(s) and not qualifying for exemption/relief may be hit with IHT at 40 per cent, which can be a substantial amount for some estates. ‘With IHT allowances frozen for many years now and the value of assets increasing, more and more estates are being caught by IHT,’ says Joanna who says inheritance tax is just one of many factors she looks at when advising clients in respect of estate planning.

‘There are often some sensible opportunities to mitigate a potential IHT bill in future. Unmarried couples, in particular, typically benefit from IHT planning to make better use of their allowances – given they do not have the same privileges as married couples – as well as any individual whose chargeable estate exceeds or may soon exceed their available allowances,’ she adds.