Inheritance tax explained

Inheritance tax can be a minefield. Whether you are planning for the future or dealing with the estate of a loved one, this particularly tricky area can often prove to be overwhelming. At Geoffrey Leaver Solicitors, we have found that this tax is often muddied by various news outlets professing to provide you with generic advice which, in fact, is often very unhelpful.

As such, we have created the below article which touches upon some of the most frequently asked questions posed to us by our clients.

What is Inheritance Tax?

Inheritance Tax is a tax which may be applicable on someone’s death. The current threshold (that is, the amount of your estate which is protected from inheritance tax) currently stands at £325,000 per person. If someone’s net estate, that is the value of estate assets once all liabilities have been taken away, falls over this amount then the amount of tax due is 40% of the net estate over this threshold.

What if I am married or in a civil partnership?

If you are married or in a civil partnership, then an Inheritance Tax relief known as spouse exemption will apply in the following circumstances:

  • If you have a Will, and leave everything to the surviving spouse/civil partner, then full spouse exemption will apply and no inheritance tax will apply; or
  • If there is no Will, then only a portion of the estate may be eligible for such exemption.

Unfortunately, this exemption does not apply to those who are co-habiting.

It is, therefore, imperative that you make a properly drafted Will.

What if I am a child and dealing with my parent’s estate?

 If you are dealing with your parent’s estate and it is an estate whereby the second of them has now died, the estate may benefit from both spouse allowances; that is, the £325,000 will double to £650,000; provided that on the death of the first parent, his or her entire estate passed to the surviving parent who is their spouse.

What happens if the person’s estate exceeds either £325,000 or £650,000?

In 2016 the government introduced a further tax relief which is known as a Residential Nil Rate Band (“RNRB”) which currently stands at £150,000 per person and will increase to £175,000 in April 2020. The general purpose of the additional relief is to assist those who own a home to pass this asset down to their lineal descendants (children, step-children etc) with the view of reducing the amount of inheritance tax that may be applicable to the estate. However, for this relief to apply, you must own the home and ensure that it passes to your lineal descendants for your estate to benefit from the allowance; that is children, grandchildren etc.

Please note that if you feel that your estate would benefit from this extra allowance, it is imperative that you should consider entering into a Will, or have your current Will reviewed, to ensure that your estate would benefit accordingly.

In summary, the nature of inheritance tax can be explained as:

  • Everyone has an Inheritance Tax free allowance which is currently £325,000;
  • You can claim your deceased spouse/civil partner’s allowance upon your death; therefore £650,000 will be applicable;
  • If you are married or in a civil partnership, then your estate can benefit from spouse exemption;
  • RNRB is available provided your property passes to your lineal descendants. The amount currently available is £150,000 which will increase to £175,000 in April 2020; and
  • Regardless of your position, whether you are married or unmarried, to ensure your estate is as most tax efficient as possible, we advise that you make a Will or have your current Will reviewed.

If you would like to speak to one of our experts call our Private Client Services team on 01908 689341 or email

Dagmara Kulczykowska

Dagmara Kulczykowska | Partner

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