Chancellor Philip Hammond recently announced that a review is to take place on inheritance tax to ensure that the system is easier to understand.
He described the system as “particularly complex”. Research has shown that many people are unsure of the rules on inheritance tax, with a study conducted by Brewin Dolphin concluding that just 12 per cent of the people they surveyed knew the correct figure for their gift allowances.
How can a review on inheritance tax benefit savers?
Many more people may have found themselves affected by inheritance tax liability, which could be down to the rising value of homes. With this, as well as the number of allowances, figures, exceptions and considerations to be taken into account, it’s likely that many people are confused about how much they are able to pass on to their loved ones tax-free.
A simpler approach to the inheritance tax system is likely to benefit those saving and planning for retirement by improving their confidence and understanding of the rules associated with the tax.
What should I keep in mind?
Whilst a review is on the cards for the inheritance tax system, it is still important to understand the rules on inheritance tax before deciding on how much you’d like to give away.
Depending on your situation, heirs will pay tax at 40% on anything they inherit that falls above the personal inheritance tax-free allowance. This is also called a “nil-rate band”. This allowance is currently at £325,000 for an individual.
Married couples and civil partners are allowed to pass their estate to their spouse tax-free when they die, as well as any unused inheritance tax allowance, meaning they can pass potentially pass up to £650,000 to their children.
A new rule was introduced in April 2017, which allows you to pass on an extra £100,000 to your children, provided that your estate includes your main home. This new allowance – called the “residence nil-rate band”, is to rise by £25,000 every year until it reaches £175,000 in 2020.
If you’d like to discuss the rules on inheritance tax or how to go about reducing inheritance tax liability, talk to one of our financial advisers. Please call on 01926 492406 or email us at firstname.lastname@example.org to make an appointment.