Inheritance Tax becoming more relevant
NewsInheritance Tax is a form of taxation that more families here have become aware of in recent years. It is a tax on the assets a person leaves behind when they die (their “estate”). Taxes on death that originally caught only the few wealthiest estates have become relevant to many more families because the amount that can be left to your family tax free (“the nil rate band”) was not raised in some years, while life insurances, investments and house prices in Northern Ireland have grown in significance over the past 20 or 30 years.
The current nil rate band is £325,000. This was due to have been raised in this tax year to £350,000, but with soaring government debt, the Labour government announced it was freezing it at £325,000 until 2015. The estate that is not exempt (e.g. the amount above the nil rate band) is taxed at 40%.
By contrast, the Conservative manifesto outlined plans to raise the nil rate band to £1,000,000. However, it is difficult to see how a minority or coalition Conservative government could prioritise this policy in the government’s current financial position.
Assets left to your spouse (including civil partner) are free of inheritance tax if you are both UK domiciled, although their own estate on death will ultimately be subject to taxation. However, spouses benefit from up to a doubling of the nil rate band when they die, if they inherited all the assets on their spouse’s prior death, even if that was many years previously. So, a widow who had inherited everything of her late husband’s would usually have an effective nil rate band when she dies of £650,000.
Deducted from the nil rate band are certain gifts made in the seven years prior to death, not counting permitted total annual gifts of up to £3,000, which can be carried back for one year. For example, if the widow had made a gift of £50,000 to her son three years before her death, the nil rate band on her estate would be reduced by £44,000. If she survives for seven years after making the gift, her nil rate band goes back up to the full level. This gift exemption does not apply to gifts from which she retains a benefit e.g signing her house over to her son, but continuing herself to live there rent free.
There are certain reliefs for business and agricultural property and exemptions for gifts to charities.
The consequences for inheritance tax for you will depend on your individual circumstances, and it is therefore worthwhile taking professional advice from a financial adviser when reviewing any investments, and a Solicitor when making your Will.
For more information contact Craig Russell on 02890 323843; email: Craig.Russell@harrisonsni.com