It is safe to say that Inheritance Tax (IHT) is one of the least popular taxes. 

IHT is a tax on the value of a person’s estate on their death. When someone dies, their estate is valued. After the deduction of any debts and liabilities, if the estate is valued over and above the IHT threshold of £325,000, known as the Nil Rate Band, a charge of 40% is levied on the value of the estate over and above the Nil Rate Band. 

By way of example Miss Brown passed away, a spinster with no surviving children. Her estate was valued at £480,000. Miss Brown had an outstanding car loan at the date of her death of £8,000 and a credit card balance of £1,000. Her funeral costs amounted to £3,500 leaving a net estate of £467,500. After the deduction of the Nil Rate Band, Miss Brown was left with a taxable estate of £142,500 charged at 40% resulting in an IHT liability of £57,000.

In addition to the Nil Rate Band married couples and civil partners can utilise their late spouse or civil partner’s unused Nil Rate Band on death known as the Transferable Nil Rate Band on the death of the survivor. This means if Mr Jenkins died for example in 2010 leaving the whole of his estate to his civil partner the executors for his civil partner who died in 2023 will have the benefit of both the Nil Rate Band and Transferable Nil Rate Band giving a tax-free allowance of £650,000.

A further IHT allowance is available where on an individual’s death, all or part of their home passes to direct descendants namely a child or grandchild. This is known as the Residence Nil Rate Band. For death’s occurring after 2020/2021 this increased the Nil Rate Band by a further £175,000. If Miss Brown in the example above, had been survived by a child her IHT allowance would have increased from £325,000 to £500,000. By claiming both the Nil Rate Band and Residence Nil Rate Band, Miss Brown’s estate would not be liable to any IHT.