Inheritance Tax (IHT)

How can Thompson Smith and Puxon help with Inheritance Tax?

Our expert Wills, Probate and Estates team are here to help you with all your Inheritance Tax questions:

• Inheritance Tax Exemptions and Reliefs
• The Seven Year Rule
• Residential Nil Rate Band

What is Inheritance Tax?

Inheritance Tax is a tax on the value of a person’s estate upon their death, and certain gifts made during their lifetime. The value is the total sum of their property, money and possessions. The threshold is £325,000 meaning that the estate will be charged on anything over that amount that isn’t being left to your spouse, civil partner, a charity or a community amateur sports club. There are a lot of conditions that impact how much your Estate will have to pay, but the standard rate is 40%.

Domicile Status

One of the factors impacting the amount of Inheritance Tax due is your domicile status. Domicile status is a complex concept based on a long line of cases in international law. We recommend seeking legal advice if you have questions about Domicile status as the rules are complicated and always changing.

For Inheritance Tax purposes HMRC can treat someone who had their permanent home (their domicile) abroad as if it was in the UK (which would make them “deemed domicile”) if they had either:

• Had their permanent home in the UK at any time in the three years before they died
• Been resident in the UK for at least fifteen of the twenty Income Tax years up to their death.

If the deceased is deemed domiciled in the UK their estate has to pay UK Inheritance Tax on all their assets. If they aren’t deemed domiciled in the UK their estate:

• has to pay Inheritance Tax on their assets situated in the UK – except excluded assets
• will not have to pay UK Inheritance Tax on their assets outside the UK.

How do I calculate Inheritance Tax?

Here’s a quick guide on how Inheritance Tax is calculated after a person has died. It assumes they were domiciled in the UK.

1. First, we will need to know the value of the estate. This is the summary of any assets the deceased held solely in their name, minus any debts they may have owed. We’ll also need to know the value of their share of any jointly owned assets, any assets held in trust, any non-exempt gifts made in their lifetime and any assets they have given away but kept an interest in.
2. If the net estate is valued at less than £325,000 then no Inheritance Tax is due. If the net estate exceeds the allowance, then tax is due on the excess amount at a rate of 40%. A rate of 36% applies if 10% of the chargeable estate passes to Charity.
3. A spouse or civil partner can effectively “inherit” the unused percentage of their deceased spouse’s or civil partner’s tax-free allowance. This means a deceased person may have up to twice the tax-free allowance available to their estate on their death. That would currently amount to £650,000.
4. The Residence Nil Rate Band was introduced in 2017 which is an additional relief of £175,000 that can applied against Inheritance Tax provided a number of conditions are met. As above this relief can also be transferred between spouses giving an additional £350,000 of relief on 2^nd properties.

Inheritance Tax can very quickly become an incredibly complicated matter, particularly when questioning domicile status. The Wills and Estates team at TSP are Inheritance Tax experts and can ease the burden of this vital part of probate.

For a guide on how much inheritance tax you may need to pay, please use our Inheritance Tax Calculator:

Inheritance Tax Calculator