Inheritance tax – thresholds, rates and how it could affect you

Share this article:

Inheritance tax – thresholds, rates and how it could affect you

21 March 2022

Share this article:

Please fill in your details to arrange a financial review with one of our financial planning or investment experts.

How it works:

  • We will call you back to find out more about your aims and requirements
  • We will arrange a meeting with one of our team at a convenient time, either over the phone, on video, at your home or workplace, or at one of our offices
  • You will be able to ask any questions you have and find out more about managing your wealth with Saltus
  • Your review will be at our cost and there is no obligation to work with us afterwards

Who we work with:

  • Individuals with £250,000 or more in investable assets
  • High earners with £100,000 or more to invest and able to reach £250,000 within five years
Please fill in your details to arrange a discussion with one of our financial planning or investment experts.
Firstname is required
Surname is required
Please enter a valid email address
Phone number is required
Postcode is required

Portfolio size *

We will treat your personal information with respect. By submitting this form, you understand that we will process your information in accordance with our privacy policy, and that you may receive ongoing insights from Saltus by email, phone or post.

The years where inheritance tax (IHT) applied only to the UK’s wealthiest are long behind us. Over the last twenty years, we have experienced a boom in UK property prices, which means many of us will be impacted by inheritance tax. It can be disconcerting to realise that almost half of your hard-earned money might be heading to the taxman rather than your beneficiaries. Understanding UK inheritance tax rules is a vital starting point if you don’t want to be adversely affected by it.

What is the UK inheritance tax threshold?

There is normally no inheritance tax to pay on assets within an individual’s estate if the estate is worth less than £325,000. You might have heard this referred to as the ‘nil rate band’. Anything over the £325,000 nil rate band will be subject to the standard UK inheritance tax rate of 40%. However, there are a few things that alter the 40% rate.

Inheritance tax rules for married couples and charitable giving

If an individual leaves their estate to their spouse, civil partner or a charity, there is no inheritance tax applied whatsoever. You can effectively leave an unlimited amount of money to your husband or wife without inheritance tax being levied.

It’s also important to be aware that any unused nil rate band on the first death within a married couple, or civil partnership, can be transferred to the surviving spouse. Although, you can only inherit double the allowance, so it won’t continue to accumulate if you are unfortunate enough to be widowed for a second time.

If charity is important to you, and you leave at least 10% of your estate to registered charities, the 40% inheritance tax charge will be reduced to 36% for the remainder of your estate. This can be an effective way to reduce your inheritance tax burden whilst also making a positive impact on the world.

Inheritance tax on property

In 2017, the government introduced the ‘residence nil rate band’, which is a superb benefit for homeowners. The residence nil rate band is an additional £175,000 that can be added to your standard nil rate band when you are passing on a property to direct descendants such as children. It can only be applied to one property and the property must have been a residence of the deceased.

Watch our webinar

Protecting your most important asset
08 January 2021

In conversation with Jack Munday and Jordan Gillies

Jack Munday
Jordan Gillies

However, when totalled, the impact on your overall inheritance tax position is significant. If you are married, or in a civil partnership and you both own a property, you can effectively pass on £1 million of assets to your direct descendants entirely free of inheritance tax. This can get a little complicated though and the rules start to alter for estates above £2 million, so it’s best to seek advice if you fall into this category.

Meet your financial needs and objectives...

Speak to an expert

Inheritance tax – gifting rules

Gifting can be a great way to reduce your inheritance tax liability. Everyone has an annual gifting allowance which means they can give away £3,000 a year without any IHT implications. There is also a phenomenal wrinkle in the tax system that few people make use of effectively, known as ‘gifts out of excess income’. As long as you can evidence that you are making a gift regularly and out of earned income (that you otherwise didn’t need), you can gift an unlimited amount completely tax-free. And finally, a gift of absolutely any size will fall out of your estate after seven years, which is unusually generous compared to other tax jurisdictions. Although, do bear in mind that there are slightly different rules if the gift is made to a trust as opposed to an individual.

It’s why, if control isn’t important to you, gifting can be a great option. Before even considering gifting though (or any other methods to reduce your inheritance tax liability), do ensure you have carried out a cash flow plan with an adviser to determine that you have enough funds to meet your own needs first.

So, with the inheritance tax threshold impacting more and more people in the UK, make sure you keep an eye on all the rules and how they could apply to your estate.

Arrange a financial review...

Book a review

Saltus Financial Planning Ltd is authorised and regulated by the financial conduct authority. Information is correct to the best of our understanding as at the date of publication. Nothing within this content is intended as, or can be relied upon, as financial advice. Capital is at risk. You may get back less than you invested.

Why Saltus?

Find out more about our award-winning wealth management services…

Finalist

Financial Advisory Firm of the Year

Finalist

Client Relationships Award

Winner

Financial Services, Banking and Insurance Firm of the Year

Finalist

Investment Performance Cautious Portfolios

£2.2bn+

assets under management

18

years working with clients

30+

advisers and investment managers

120+

employees

Discover more

Financial planning

Financial planning can help you reach your goals in life, whether you want to determine when you can retire comfortably, bring organisation to your financial world or pass on your wealth effectively.

Pensions and retirement planning

Deciding when to retire is a challenging decision and can feel like a leap of faith. At Saltus, we gather information on all of your existing assets and then use our technology and expertise to show you exactly how to achieve the retirement you’re after.

Reducing your tax burden

How to structure your wealth and access income should be approached in a sophisticated way. A detailed financial plan may use pensions, ISAs, general investment accounts, offshore bonds and other tax wrappers to ensure you can draw your money in a tax-efficient manner.

Consolidating your wealth

Holding multiple investment accounts and pensions can mean they’re hard to keep track of and administer. We’ll help you overcome this by consolidating your accounts into a single plan so that you can understand your financial position with ease.

Protecting you and your assets

We protect our cars and houses without much thought yet you might be the most valuable asset in your family. Whatever your situation, we can provide advice to ensure you have the right level of insurance in place to keep your finances protected.

Passing on your wealth

Estate planning is more important than just having a Will. We’ll work closely with you to understand how estate planning, which has emotional as well as financial consequences, can impact your overall financial plan.

Significant life events

Significant life events can present great opportunities but also considerable challenges. Whether you are going through a business sale, divorce or are receiving a lump sum, we’ll help build a financial plan to meet your changing lifestyle.

Related blog posts

Get in touch with Saltus…