26th November 2020

Inheritance Tax and Executry Estate Allowances

Currently, every individual in the UK has a Nil Rate Band (“NRB”) allowance of £325,000, being the maximum value of assets one can pass to another upon their death without the estate being subject to an inheritance tax (“IHT”) bill.

Where the full NRB allowance is not utilised (say, for example, if the whole estate passed to a surviving spouse) the second spouse’s executors may apply to carry over the percent of unused NRB from the first spouse’s estate (in this example, it would be 100%) to amalgamate with the 2nd spouse’s own NRB allowance and, potentially, allow assets of up to £650,000 to pass free of IHT.

Additionally, in 2017, HM Revenue & Customs introduced the Residence Nil Rate Band (“RNRB”), which, for this tax year, provides a possible additional threshold of up to £175,000 (the available allowance is less if, for example, the deceased’s house was only worth £100,000).

This allowance is available to estates where the deceased:

  1. died on or after 6 April 2017; or
  2. owned a qualifying residential interest (it is possible to utilise the allowance if down-sized, or if a qualifying dwellinghouse was sold on or after 8 July 2015); or
  3. the residential interest is inherited by direct descendants (includes children (biological, adopted, foster and step child) and grandchildren but excludes nieces/nephews).

Similar to the NRB, any RNRB which is unused after the 1st death, may be transferred to the 2nd spouse’s estate.   If the qualifying conditions are met, this may provide an additional allowance of up to a maximum of £350,000, based on the RNRB available for tax year 2020/21.

If the net value of an individual’s estate exceeds £2 million, the RNRB is tapered and will decrease by £1 for every £2 which exceeds the threshold.

The RNRB rules are, however, unduly complicated and professional advice is always recommended.

Chargeable estate which is not covered by the available allowances/exemptions is subject to IHT, calculated at 40% (or 36% where at least 10% of the net estate is left to charity).

Other available reliefs

Business Property Relief (“BPR”)

BPR is a relief from IHT available to transfers on death (and lifetime transfers) for certain types of businesses and business assets subject to a minimum period of ownership.

Agricultural Property Relief (“APR”)

APR is another relief from IHT available to transfers on death (and lifetime transfers) for certain types of property that qualify as “agricultural” property.  There are also rules in place regarding the minimum period of ownership or occupation.

Both BPR and APR provide relief from IHT at a rate of either 50% or 100%.  The interaction between these reliefs can be complicated and, again, professional advice is always recommended.

Potentially Exempt Transfers

Where gifts made by a deceased person within 7 years of their death (called “potentially exempt transfers” – or, ”PET’s”) are not covered by their £3,000 lifetime annual exemption, the value of such gifts will fall to be aggregated with the estate value at the date of death for IHT purposes. The gifts are treated as failed “PET’s” on the basis that the deceased did not survive 7 years after making the gifts.

As detailed in Sienna Sproson’s blog, various IHT allowances are available to utilise during your lifetime in order to reduce the value of your estate, where it could be subject to an IHT liability upon your death.

It is always best to seek full legal advice when estate planning for IHT purposes.  If you would like assistance with this, please contact any member of our private client team who will be happy to help.

Millie Crocker, Solicitor
Private Client, Executries
Blackadders LLP
@ExecLawMillie

www.blackadders.co.uk

 

 

The opinions expressed in this site are of the author(s) only and do not necessarily represent the opinions of Blackadders LLP.

Blackadders takes all reasonable steps to ensure that the content of this site is accurate and up to date. The site is not, however, intended as a substitute for seeking legal or other professional advice but rather as an informative guide to the services provided by Blackadders and topical legal developments. Site visitors should always seek advice tailored to their specific situation. Consequently, Blackadders accepts no responsibility for any loss or damage suffered by anyone acting or failing to act on the basis of information contained on this site. Downloading of material contained on this site is at the user’s own risk and all necessary virus checks must first be carried out by the user. Blackadders is not responsible for the material found on any web sites linked to this one and links to this site may only be made with Blackadders prior consent.

Copyright

Blackadders owns the copyright in this blog and all material contained on it. The material on this site may be downloaded for personal use only and must not be altered. Otherwise, Blackadders’ written consent is required before any material on this site is reproduced, copied or transmitted in any way.

Privacy Statement

Information passed to us via this site is kept confidential and will not be disclosed to third parties except if authorised by you or required by law.

© Blackadders LLP 2020

Members of the Law Society of Scotland.

Blackadders Solicitors is a trading name of Blackadders LLP, a limited liability partnership, registered in Scotland No SO301600 whose registered office is 30 & 34 Reform Street, Dundee, DD1 1RJ. Reference to a ‘partner’ is to a member of Blackadders LLP.

Back to You & Your Family News