Inheritance tax is hanging over more and more of us each year.

This is largely due to the rise in residential property values. The IHT allowance is £325,000. Depending on the value of your house and other assets, this may not be a very big allowance. If you die leaving an estate worth more than £325,000 and you have no spouse your estate will be liable for IHT at 40% on the balance.

Even if you do have a spouse to inherit then this only puts off the time when tax will be payable because the issue will arise again on his or her death. It is worth doing some forward planning with a tax adviser to decide whether it would be appropriate to gift some of your estate, perhaps to children or other relatives, during your lifetime; or possibly redirect assets up to the value of the nil rate band into a trust on death.

One thing is for sure with all forms of tax; if you do nothing the government will use its considerable powers to ensure that a share of your hard earned wealth ends up in their coffers.

INHERITANCE TAX

IHT – Nil Rate Band

This remains unchanged at £325,000.

Inheritance Tax (IHT): Simplification of trust charges and the division of the nil-rate band

Residence Nil Rate Band (RNRB) – is an allowance for Inheritance Tax (IHT) which has become available in addition to the existing nil rate band of £325,000 per person. It applies to deaths occurring on or after 6 April 2017.

The RNRB allows individuals to leave a house to direct descendants (i.e. children or grandchildren) with part or possibly all the property value being free of inheritance tax. The RNRB, once it has been fully introduced by 2021, could result in significant IHT savings on the death of the surviving spouse. One important point to note is that the RNRB does not apply where the value of the estate exceeds £2.2 million.

The Residence Nil Rate Band started at £100,000 per person from April 2017 and will increase incrementally by £25,000 per year to a maximum of £175,000 by 2020/21. Beyond 2021, the maximum RNRB will increase in line with inflation.

It is important that you have the right Will in place as, by 2021, it may be possible for couples to pass up to £1 million of estate tax free once the Residence Nil Rate Band is fully implemented.