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Tax Tip 1: Inheritance Tax and the thresholds available to spouses & civil partners

Working out the Inheritance Tax (IHT) thresholds for a married couple is no longer easy following new legislation where the family home is concerned.

Every individual* who has assets in the UK is subject to IHT on their death.

Assets passing to a spouse or civil partner on your death through your will or through an intestacy (where there is no will) are exempt from IHT. Any assets passing to a beneficiary who is not exempt (i.e. children, friends and other family members) is taken into account when calculating the IHT which may be due on your death.

The first £325,000.00 of an individual’s estate is charged IHT at a rate of 0%. This is called the Nil Rate Band (NRB).  Previously, the value of an estate over this NRB was charged IHT at a rate of 40%. 

However, now if you own a property which you have lived in and you are ultimately leaving this to a direct descendant (albeit through your spouse or civil partner in the first instance) your estate will be entitled to an additional £100,000.00 which is also taxed at 0%. This is called the Residence Nil Rate Band (RNRB).  For a detailed look at the RNRB and how this works please read day three of our 12 Tax Tips of Christmas due to be released on the 10th of December.

This means that if you leave everything to your spouse or civil partner on your death, your entire estate is exempt from IHT. On the death of your spouse or civil partner, provided their will is structured correctly, their executors can transfer your NRB and RNRB and use their own NRB and RNRB giving their estate a total of £850,000.00 before IHT becomes chargeable at a rate of 40%. 

If you have any questions about Inheritance Tax or would like any further information about this Tax Tip please contact Jennifer Charlton an Associate in our Private Wealth Team who would be happy to help.


*This article assumes that you are domiciled in the England and Wales. If you are not, please contact our Private Wealth team who can provide you with advice specific to your circumstances.


These notes have been prepared for the purpose of articles only. They should not be regarded as a substitute for taking legal advice.

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