Inheritance tax (IHT) is a tax on the value of a person’s estate on death and on certain lifetime gifts. This article focusses on IHT when someone dies and they are domiciled in England or Wales.

IHT used to be a Tax on the rich; however more families are finding they are getting caught.

IHT on death, is taxed at 40% on the value of an Estate above the available nil rate band, so this is a tax that can sting!

But aren’t the Government increasing the nil rate band to 1 million?

The current allowance is 325,000 for single people (total of 650,000 between married couples/civil partners).

One of the Tory pre-election pledges was that they would increase the nil rate band allowance to 1 million (total between married couples/ civil partners).

Instead of keeping things straightforward and increasing the nil rate band to 1 million the Government decided to bring in an additional allowance to sit alongside the current one and it will be called the main residence allowance. It is being introduced in April 2017 at 100,000 and will rise to 175,000 by 2020.

When added to the 325,000 nil-rate band, by 2020 this will provide a combined tax-free band of 500,000 for single people and married couples/ civil partners potentially have a combined allowance of 1m.

However, the details of the legislation have not yet been finalised. And the devil is in the detail! What we do know so far is that not everyone will benefit from the new allowance.

In order to get it you need to pass your main residence or the proceeds of sale thereof to your direct descendants. It is important to note that Discretionary Trusts in your Will, even if your direct descendants are the beneficiaries of the Trust, will fall foul of the rules.

For those with assets of over 2 million, the allowance will be tapered away at 1 for every 2 you have over 2 million.

If you think that the new allowance may be applicable to you, it is sensible to keep an eye on the news in the next few months and seek legal advice as to what you need to do in your Will, or indeed if you are administering an Estate, in order to claim the additional allowance.

If, after reading this article, you have any further queries, please contact a member of our Private Client Team who will be happy to assist.

In the meantime there are other things you might want to consider in order to minimize the IHT bill.

A little planning now could save your families thousands of pounds in the future.

• An annual exemption of up to 3,000 can be given away each tax year. This is generally exempt from IHT and can be carried forward to the next year if not used;

• Small gifts of 250 per year per recipient; to any number of people each tax year, (although it can’t be the same person who received a gift from the 3,000 annual exemption)

• gifts in consideration of marriage/ civil partnership of up to 5,000 by parents (2,500 for grandparents or 1,000 anyone else);

• gifts from normal expenditure out of income. This is where the donor can establish a regular pattern of giving over a period of time, using their income but leaving the donor sufficient income to maintain his usual standard of living after all normal expenditure is considered. But you must keep records of all expenditure and income!

• gifts to charity; and

• gifts to a spouse or civil partner.

If you make gifts over and above these exemptions, they may still be free from IHT, as long as you are still living seven years from the date of the gift.

Other non-exempt gifts made within 7 years of death will be brought back into account and included as part of an Estate on death.

Also, you can’t give money or assets away and continue to use them, so if you give your home away and continue to live in it, this will still be included in your Estate for IHT purposes.

If gifting isn’t appealing there are other IHT saving investment schemes or insurances which our colleagues at Ellisons Financial Planning can advise on.

If, after reading this article, you have any further queries, please contact a member of our Private Client Team who will be happy to assist.

We will also be hosting a morning seminar to discuss this topic in further detail. Email the Head of Business Development, Emma Boorman, at to find out more.