It’s good to think about the future of your estate. The earlier you question when and how it’s best to help your children or grandchildren financially the better. The same applies for your loved ones, close friends, distant relatives and any causes or organisations you care strongly about and wish to support.

If you intend to leave any amount of money to any kind of beneficiary, you should ideally first have an understanding of inheritance tax (IHT). Knowing your allowances, knowing what can be considered a gift (mostly tax-free), and having a grasp of the most recent rules will allow you to make an informed and tax-efficient inheritance plan. 

Since 2010/11 the tax-free inheritance allowance has been £325,000 per person. This is known as the nil-rate tax band. For anything in an estate over that £325,000 threshold, the standard IHT rate is 40%. If you are leaving a property to a direct family member there is an additional allowance known as ‘the residence nil-rate band’ of £175,000. This effectively increases your inheritance allowance to £500,000. For married couples who jointly own a family home and want to leave it to their children, this effectively raises the IHT-free allowance to £1m.

In the 2021 Spring budget, the government announced that these inheritance tax nil-rate bands will remain frozen at their current levels until April 2026. 

As well as your general IHT-free allowance, gifts between spouses and civil partners and gifts to charities are usually tax-free. You can also take advantage of what are known as ‘potentially exempt transfers’ (PETs) which are tax-free dependent on when they are made. Generally, a gift given to an individual seven years before the death of the benefactor will not be taxable.

There is a sliding scale, called ‘taper relief’, which dictates how much tax is to be paid on gifts made up to 7 years before the death of the benefactor. Up to 3 years results in the full 40% standard rate, 4 to 5 years sits at 24% with 6 to 7 years being taxed at 8%.

The most up-to-date official government guidance around inheritance tax, passing on a home, gifting allowances and the implications for benefactors whose permanent home is abroad, you can visit https://www.gov.uk/inheritance-tax

You should always seek professional advice and guidance before acting. At Questa Chartered, we have a wealth of experience in helping families make provision for the future throughout the generations. If these uncertain times have caused you to think about planning for the unexpected, give yourself some peace of mind and get in touch.