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

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“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.