At a glance

  • There was no radical overhaul of IHT in the March Budget, and the 40% IHT tax rate was left as-is
  • April 2020 saw increases to the residence nil-rate band, meaning more of a homeowner’s estate can go tax-free to their children and grandchildren
  • Heirs can now inherit up to £1 million tax-free
  • The rate of interest on IHT payments dropped slightly in April 2020 to 2.60%

At a glance

  • There was no radical overhaul of IHT in the March Budget, and the 40% IHT tax rate was left as-is
  • April 2020 saw increases to the residence nil-rate band, meaning more of a homeowner’s estate can go tax-free to their children and grandchildren
  • Heirs can now inherit up to £1 million tax-free
  • The rate of interest on IHT payments dropped slightly in April 2020 to 2.60%

At a glance

  • There was no radical overhaul of IHT in the March Budget, and the 40% IHT tax rate was left as-is
  • April 2020 saw increases to the residence nil-rate band, meaning more of a homeowner’s estate can go tax-free to their children and grandchildren
  • Heirs can now inherit up to £1 million tax-free
  • The rate of interest on IHT payments dropped slightly in April 2020 to 2.60%

Despite much anticipation, Rishi Sunak’s Budget speech on 11 March 2020 contained no references to Inheritance Tax (IHT). The challenges presented by COVID-19 put paid to any pronouncements on the tax, though some changes have been introduced.

IHT allowance raised for homeowners

Although the individual IHT allowance of £325,000 remains untouched, the residence nil-rate band was increased from £150,000 to £175,000 on 6 April 2020. This allowance is applied if a homeowner dies and their children or grandchildren, including foster and step-children, inherit their main home.

The increase in the allowance means up to £500,000 of an inheritance is now potentially tax-free for children and grandchildren.

Couples can now leave up to £1 million tax-free

Married couples, and those in a civil partnership, can inherit the IHT allowances of a partner who predeceases them. This means that the surviving spouse or partner inherits any of the £325,000 not bequeathed to others in the deceased’s will, plus their residence nil-rate band allowance, if relevant.

Given April’s residential rate increase, children or grandchildren can now inherit up to £1 million tax-free.

Larger estates face tapering

The £175,000 residence nil-rate band doesn’t benefit all homeowners. If your estate is particularly valuable, it will probably be affected by what’s known as the tapering restriction. This sees the value of the residence nil-rate band reduced by £1 for every £2 above £2 million, meaning estates valued at more than £2,350,000 for individuals or £2,700,000 for surviving spouses and civil partners won’t benefit from this additional allowance.

If your estate is worth more than £2 million, you should seek financial advice to establish the best ways to reduce your liability. Gifting money to charities and amateur sports clubs are among the options worth considering, as is setting up a trust for a family member.

IHT interest rate cut

When someone dies, their beneficiaries must pay off the IHT bill within six months or HMRC will start charging interest. Executors can spread payments in annual instalments over many years, but if all the assets of an estate are sold, the bill must be settled.

Given the size of some estates, it’s often best to pay a large lump sum within the first six months, even if the value of the estate hasn’t been calculated. This will help limit the amount paid in interest.

In the tax year starting 6 April 2020, the interest rate for IHT payments has been cut to 2.60% from 2.75%. If you have overpaid your IHT bill, 0.5% interest is applied to any repayments.

Change to IHT due in 2021

No tax is popular, but many people hold particularly dark thoughts about IHT. However, at present the only major change definitely on the cards will happen in April 2021, when allowance rates will be pegged to the Consumer Price Index, or CPI, measure of inflation.

This change is seen as a move in the right direction, but many commentators believe the government should be more generous. Currently, only around 5% of estates are liable for IHT. However, given soaring house prices over the past two decades, more and more people will have estates that are likely to be valued above the current thresholds.

More radical IHT reforms could lie ahead

Prior to this year’s Budget, some predicted changes such as reducing the 40% tax rate to 10% and shortening the seven-year period in which a lifetime gift would be subject to IHT. But, with everything else that was going on when the Chancellor made his speech in March, IHT reforms joined the long list of initiatives that have been, for want of a better word, furloughed.

 

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

Despite much anticipation, Rishi Sunak’s Budget speech on 11 March 2020 contained no references to Inheritance Tax (IHT). The challenges presented by COVID-19 put paid to any pronouncements on the tax, though some changes have been introduced.

IHT allowance raised for homeowners

Although the individual IHT allowance of £325,000 remains untouched, the residence nil-rate band was increased from £150,000 to £175,000 on 6 April 2020. This allowance is applied if a homeowner dies and their children or grandchildren, including foster and step-children, inherit their main home.

The increase in the allowance means up to £500,000 of an inheritance is now potentially tax-free for children and grandchildren.

Couples can now leave up to £1 million tax-free

Married couples, and those in a civil partnership, can inherit the IHT allowances of a partner who predeceases them. This means that the surviving spouse or partner inherits any of the £325,000 not bequeathed to others in the deceased’s will, plus their residence nil-rate band allowance, if relevant.

Given April’s residential rate increase, children or grandchildren can now inherit up to £1 million tax-free.

Larger estates face tapering

The £175,000 residence nil-rate band doesn’t benefit all homeowners. If your estate is particularly valuable, it will probably be affected by what’s known as the tapering restriction. This sees the value of the residence nil-rate band reduced by £1 for every £2 above £2 million, meaning estates valued at more than £2,350,000 for individuals or £2,700,000 for surviving spouses and civil partners won’t benefit from this additional allowance.

If your estate is worth more than £2 million, you should seek financial advice to establish the best ways to reduce your liability. Gifting money to charities and amateur sports clubs are among the options worth considering, as is setting up a trust for a family member.

IHT interest rate cut

When someone dies, their beneficiaries must pay off the IHT bill within six months or HMRC will start charging interest. Executors can spread payments in annual instalments over many years, but if all the assets of an estate are sold, the bill must be settled.

Given the size of some estates, it’s often best to pay a large lump sum within the first six months, even if the value of the estate hasn’t been calculated. This will help limit the amount paid in interest.

In the tax year starting 6 April 2020, the interest rate for IHT payments has been cut to 2.60% from 2.75%. If you have overpaid your IHT bill, 0.5% interest is applied to any repayments.

Change to IHT due in 2021

No tax is popular, but many people hold particularly dark thoughts about IHT. However, at present the only major change definitely on the cards will happen in April 2021, when allowance rates will be pegged to the Consumer Price Index, or CPI, measure of inflation.

This change is seen as a move in the right direction, but many commentators believe the government should be more generous. Currently, only around 5% of estates are liable for IHT. However, given soaring house prices over the past two decades, more and more people will have estates that are likely to be valued above the current thresholds.

More radical IHT reforms could lie ahead

Prior to this year’s Budget, some predicted changes such as reducing the 40% tax rate to 10% and shortening the seven-year period in which a lifetime gift would be subject to IHT. But, with everything else that was going on when the Chancellor made his speech in March, IHT reforms joined the long list of initiatives that have been, for want of a better word, furloughed.

 

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

Despite much anticipation, Rishi Sunak’s Budget speech on 11 March 2020 contained no references to Inheritance Tax (IHT). The challenges presented by COVID-19 put paid to any pronouncements on the tax, though some changes have been introduced.

IHT allowance raised for homeowners

Although the individual IHT allowance of £325,000 remains untouched, the residence nil-rate band was increased from £150,000 to £175,000 on 6 April 2020. This allowance is applied if a homeowner dies and their children or grandchildren, including foster and step-children, inherit their main home.

The increase in the allowance means up to £500,000 of an inheritance is now potentially tax-free for children and grandchildren.

Couples can now leave up to £1 million tax-free

Married couples, and those in a civil partnership, can inherit the IHT allowances of a partner who predeceases them. This means that the surviving spouse or partner inherits any of the £325,000 not bequeathed to others in the deceased’s will, plus their residence nil-rate band allowance, if relevant.

Given April’s residential rate increase, children or grandchildren can now inherit up to £1 million tax-free.

Larger estates face tapering

The £175,000 residence nil-rate band doesn’t benefit all homeowners. If your estate is particularly valuable, it will probably be affected by what’s known as the tapering restriction. This sees the value of the residence nil-rate band reduced by £1 for every £2 above £2 million, meaning estates valued at more than £2,350,000 for individuals or £2,700,000 for surviving spouses and civil partners won’t benefit from this additional allowance.

If your estate is worth more than £2 million, you should seek financial advice to establish the best ways to reduce your liability. Gifting money to charities and amateur sports clubs are among the options worth considering, as is setting up a trust for a family member.

IHT interest rate cut

When someone dies, their beneficiaries must pay off the IHT bill within six months or HMRC will start charging interest. Executors can spread payments in annual instalments over many years, but if all the assets of an estate are sold, the bill must be settled.

Given the size of some estates, it’s often best to pay a large lump sum within the first six months, even if the value of the estate hasn’t been calculated. This will help limit the amount paid in interest.

In the tax year starting 6 April 2020, the interest rate for IHT payments has been cut to 2.60% from 2.75%. If you have overpaid your IHT bill, 0.5% interest is applied to any repayments.

Change to IHT due in 2021

No tax is popular, but many people hold particularly dark thoughts about IHT. However, at present the only major change definitely on the cards will happen in April 2021, when allowance rates will be pegged to the Consumer Price Index, or CPI, measure of inflation.

This change is seen as a move in the right direction, but many commentators believe the government should be more generous. Currently, only around 5% of estates are liable for IHT. However, given soaring house prices over the past two decades, more and more people will have estates that are likely to be valued above the current thresholds.

More radical IHT reforms could lie ahead

Prior to this year’s Budget, some predicted changes such as reducing the 40% tax rate to 10% and shortening the seven-year period in which a lifetime gift would be subject to IHT. But, with everything else that was going on when the Chancellor made his speech in March, IHT reforms joined the long list of initiatives that have been, for want of a better word, furloughed.

 

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

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