Time to get your head around inheritance tax

INHERITANCE tax is something you don’t often have to grapple with until a death in the family.

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But grasping the basics can be financially savvy, especially as the autumn Budget is expected to bring about some changes.

“Inheritance tax is one of those areas that is always under the spotlight, and it seems to be a popular point of discussion at the moment,’ says Reme Holland, financial planning partner at accountancy firm Albert Goodman. “We'll see what happens in November, but I would always say, don’t make any rash decisions. Seek advice first before you do anything.”

How does inheritance tax work?

“Every individual has a nil rate band of £325,000, which means you can have assets worth up to £325,000 and not be liable for any inheritance tax [IHT],” explains Reme.

It’s only on assets that exceed this that you have to pay IHT, which, as standard, is 40% over the threshold.

Are there any exemptions?

Yes, particularly if you're married or in a civil partnership.

“A spousal exemption means that a husband and wife [for instance] could leave everything to each other, and no inheritance tax would be due,’ says Reme. “It would only be due on the second death, at which point both those allowances [of £325,000] could be combined.”

Other exemptions include “business property relief and agricultural property relief if you're in farms and estates” and for those leaving their estate to a charity or a community amateur sports club.