Inheritance Tax

Inheritance Tax (also known as IHT) is a tax which is paid on the assets that you own when you die - therefore reducing how much you pass on to your beneficiaries. You can however take off any debt you have when calculating your ‘net assets’ on which IHT is charged.

If you didn’t know, assets doesn’t just mean your house or the properties you own. It also means the money you own, any investments, any possessions you have such as jewellery and any other properties that you have. However, did you know inheritance tax is not just applied to your assets but can also apply to ‘gifts’ that you have given whilst you’re still alive making it a very complex and frustrating subject.

How Much Is It?

As of the year 2024/2025, IHT is paid at 40% on net assets worth more than £325,000. This £325,000 is called the ‘nil rate band’ (NRB) and think of it as your personal allowance where you don’t have to pay IHT. Nevertheless, anything over £325,000 is taxed at 40% - massive right?

To give an example, Lucy’s estate value is £1.1 m which is in cash and investments - with no property. Since Lucy has an allowance of £325,000 which is tax free, she will only have to pay the inheritance tax on the remaining £775,000 at 40%. This means a £310,000 inheritance tax bill. 

Now you might be thinking why did I mention that there is no property in the estate. This is because HMRC also gives a ‘tax free allowance’ on your main household in your estate also known as the '"‘residence nil rate band’ (RNRB) which is £175,000. Taking the above example again, if Lucy’s £1.1m estate had included property, the deduction is now £500,000 from the £1.1 m leaving £600,000 to pay tax on of £240,000.

Note, if you are married, than the tax-free allowance doubles up to £700,000 or £1m depending on whether you include the RNRB.

How we can help

At Oasis Wealth, we have strategies to reduce your IHT and often this means saving you hundreds of thousands of pounds of IHT savings. This can include advice to:

• Give you assets away now to your loved ones (note there are rules governing what is IHT free)

• Setting up IHT-friendly trusts

• Investing up IHT efficient investments (eg did you know pensions are exempt from IHT?)

• Sometimes bypassing your children to give some of your assets to your grand-children (can be more IHT-efficient)

Don’t let the tax man take 40% of your hard earned cash.

The Financial Conduct Authority do not regulate inheritance tax planning.

Tax treatment varies according to individual circumstance and is subject to change