An ‘estate’ is defined as the property, money and possessions that are left for beneficiaries. The assets which form part of an estate include:

  • Cash in the bank
  • Investments
  • Jewellery, art, antiques and home furnishings
  • Any property or business
  • Vehicles
  • Payouts from life insurance policies

Inheritance tax is only payable if the value of the estate exceeds £325,000, and this is known as the Nil Rate Band (NRB). If someone is married or in a civil partnership, then they have a joint Nil Rate Band of £650,000.

The Nil Rate Band can also be extended through use of the Residence Nil Rate Band (RNRB) which was introduced in 2017. This enables a further £175,000 of relief to be available if the qualifying conditions are met. After the FY 21/22 tax year, the RNRB threshold will go up in line with inflation based on the Consumer Price Index.

Unless other reliefs or exemptions apply, 40% inheritance tax is payable on estates which are valued over the relevant threshold.

Inheritance Tax Facts

Inheritance tax (IHT) receipts reached record levels in FY 2017/2018 at over £5 billion – and are forecast to hit £10 billion by 2030

An increasing number of families are becoming liable for IHT due to rising house prices

IHT is a ‘voluntary tax’ which can be mitigated with sound financial planning

It’s easy for investors to make costly mistakes, so IHT planning requires specialist advice

Stellar Asset Management has the expertise to work with investors and their advisers, to determine the best approach to mitigating inheritance tax

Worked Example

On an estate which is worth £500,000, inheritance tax would usually be charged on £175,000 – which is the total estate value minus the standard Nil Rate Band of £325,000. So the calculation would be £175,000 x 40% = £70,000 to pay in inheritance tax. This means that only £430,000 would be inherited. However, if the £175,000 has been invested with Stellar Asset Management for the previous two years or more, it would quality for Business Relief – and no inheritance tax would be payable.