The current basic inheritance tax threshold is £325,000 for an individual. If the value of your overall estate exceeds this amount and does not have the benefit of any tax reliefs, inheritance tax will be payable at 40% on the amount that exceeds the threshold.
The threshold can be transferred to the estate of a surviving spouse, therefore a married couple or civil partner can benefit from a combined basic inheritance tax threshold of £650,000.
There is also a residential nil rate band which is available for residences inherited by direct descendants in addition to the existing nil rate band.
The residential nil rate band currently adds a further £100,000 to the existing nil rate band. This will then increase by £25,000 each year up to 2020/21, when it will reach £175,000. Each person will therefore have a maximum allowance of £500,000, with surviving spouses potentially having an allowance of £1 million to offset against IHT when their partner’s allowance is transferred to them.
Should you pass a property onto your spouse or civil partner when you die, you will not have to pay inheritance tax. However, if you leave a property to another person in your will counts towards the value of your estate.
Providing any money that is gifted is done so seven years or more before your death, neither parties will incur a charge. You can also make up to £3,000 worth of gifts in any tax year without incurring a IHT charge. This allowance carries through to the next year if you haven’t used the previous year’s allowance.