Inheritance Tax and the recent budget – what’s new?

The unfortunate answer to this question is:  not very much, apart from  a new administrative rule which will be making life slightly easier when an estate needs to pay inheritance tax, but there are no funds available.

Normally, executors or administrators have to pay Inheritance Tax to the HMRC, then they are allowed to apply for Grant of Probate. This has historically been a problem in situations where, for whatever reason assets in the estate could not be accessed to pay IHT, thus creating a “catch 22” situation, since you cannot sell or transfer or cash in estate assets without a Grant of Probate.

However,  from 1 April 2024,  personal representatives will be able  to apply for a ‘grant on credit’ from HMRC, avoiding the need to take out a commercial loan in many cases which is usually at very unfavourable rates.

Nonetheless the budget provides an opportunity to remind you of the current allowances and exemption, the main ones of which are as follows:

• Nil Rate Band (NRB): The NRB sets the threshold for the amount of a person's estate that can be passed on upon their death without incurring any Inheritance Tax. As of the 2023/2024 tax year, the NRB is £325,000 per individual.  This is set to be frozen until the end of 2027/28, meaning it will by then have remained the same for 19 years. This has been, and will inevitable bring more  estates into  ‘taxable territory’.
• Residence Nil Rate Band (RNRB): The RNRB is an additional allowance specifically related to the value of an individual's main residence that is being passed on to direct descendants, such as children or grandchildren (although it includes stepchildren and step grandchildren).

For the 2023/2024 tax year, the RNRB is £175,000 per individual. However, the rules around this particular allowance are rather complicated, with numerous traps to look out for, and which an experienced lawyer will be able to help you avoid/navigate when you prepare your will.

• Annual Exemption: Each individual is entitled to the annual exemption, which allows gifts up to a certain value to be made each tax year without incurring Inheritance Tax. The current annual exemption is £3,000 per individual. This is over and above the above NRB and RNRB.
• Small Gifts Exemption: This exemption allows individuals to make small gifts up to a certain value to as many people as they like without these gifts being subject to Inheritance Tax. The small gifts exemption limit is £250 per person per tax year.
• Exempt Beneficiaries:

·        Certain beneficiaries, such as charities and qualifying political parties, are exempt from paying Inheritance Tax.

In addition to this, it pays to be charitable! If a person leaves at least 10% of their net taxable estate (after any allowances) to charitable beneficiaries, the rate of IHT applicable to the estate is reduced by 4%.

·        Spouse exemption  - IHT spouse exemption means married couples and civil partners can pass on assets to each other without IHT applying to them. This is because gifts to spouses are exempt from inheritance tax, and most importantly, do not count towards the inheritance tax threshold of the first partner to pass away.

Furthermore, if the first spouse or civil partner does not utilise their full NRB and RNRB (if available), any unused allowances can be transferred to the surviving spouse or civil partner. This effectively increases (and in many cases doubles) the tax-free threshold for the survivor when they pass away, potentially reducing the overall inheritance tax liability on their estate.

It's important to note that these allowances and exemptions are subject to change, and individual circumstances can vary. Seeking advice from an expert solicitor who has ample experience and knowledge in estate planning and wills is therefore crucial.

At Solomons Solicitors we are proud to offer expert advice from our team of lawyers which include members of the Association of  Lifetime Lawyers   and members of STEP .

Speak to our Bournemouth-based  expert  Solicitors today

Solomons Solicitors can help you with advising on all your estate planning needs and preparing all related key documents such as wills, LPA's or trusts.

For a free initial consultation, call us today on 01202 802 807 or use our online contact form.