"What can I do about inheritance tax?"

The rules governing inheritance tax (IHT) are different for married couples and those in a civil partnership than for those who live together as a couple. 

Inheritance tax is a tax on the estate of someone who has died. IHT is charged at 40 per cent over and above an individual’s nil rate band (NRB) allowance subject to any other exemptions being available.  This figure has been frozen until 2021 at £325,000. 

While the nil rate band is transferable between spouses (meaning the surviving spouse has a total potential nil rate band allowance available to them of £650,000), it cannot be transferred between partners who live together.  Cohabiting couples can  therefore end up paying much more tax than a married couple.

There are other exemptions to IHT such as: 

  • Business property relief
  • Agricultural property relief
  • Charitable exemption 
  • The residence nil rate band 
  • What is the residence nil rate band?

The government also introduced a new IHT allowance known as the ‘residence nil rate band’ (RNRB) that came into force on 6 April 2017.

This allowance applies in addition to the existing nil rate band allowance but is conditional upon the main family home (or a share of it ) being passed on to lineal descendants i.e. children and grandchildren.  

The 'residence nil rate band' is also ‘transferable’ between spouses so if it isn’t used on the death of the first spouse, the survivor will have two allowances on their death. However, this does not apply to cohabiting couples. 

Inheritance and tax planning is a complex area of law. Our specialist private wealth and trust lawyers can advise on all areas of tax planning.

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