Inheritance tax is a tax paid on the value of your estate – essentially all taxable assets you own, such as most property, possessions and funds in bank accounts etc. – after you pass away.
Inheritance tax is calculated at 40% on all assets over what’s known as your nil-rate band threshold of £325,000. If as a single individual you own assets worth more than £325,000, you may have to pay inheritance tax on everything over and above this.
If you’re passing on your main home to direct descendants (children, grandchildren, great-grandchildren, stepchildren etc.), there’s also a separate allowance or threshold known as the main residence nil-rate band that impact the inheritance tax calculations.
The main residence nil-rate band was introduced in the 2017/18 tax year and initially stood at £100,000. It will rise each year until the 2020/21 tax year, when it will stand at £175,000. Thereafter, it will rise with inflation.
The main residence nil-rate band is available to be applied to all estates worth less than £2 million. For estates worth more than this, the nil-rate band tapers down by £1 for each £2 over this threshold.
UK Tax Year
Value of Residence Nil-Rate Band
Rises in line with CPI inflation
This means that by 2020/21, a single individual passing on their main residence as part of their estate will have an inheritance tax-free threshold of £500,000. Any taxable assets above this will face inheritance tax at 40%.
In order to calculate the inheritance tax liability that your estate will attract from the start of the 2020/21 tax year, you’ll need to:
If this sounds complicated, don’t worry – it can be! That’s why we’ve built our Inheritance Tax Calculator below. Simply enter your assets and your liabilities and answer the rest of the questions to calculate your potential inheritance tax bill.
If you’re struggling to calculate how much inheritance tax you’ll pay, you’re not alone. It’s not a simple calculation, as you may have seen above!
Our Inheritance Tax Calculator is a good place to start but it’s no substitute for an expert’s advice. Our experts will work with you to understand your specific circumstances and based on their knowledge of inheritance tax will be able to make recommendations as to the best way to minimise the inheritance tax bill for your loved ones.
If you would like to discuss your options with one of our experts please do not hesitate to give us a call on 02084327334 or email firstname.lastname@example.org.
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