It’s never too early to plan for a potential Inheritance Tax charge. Here are some things about IHT and gifting to your family that you might not know about.
Inheritance Tax in Figures
During the 2019-20 tax year, HM Revenue & Customs (HMRC) collected a record £5.13 billion  in Inheritance Tax.
Soaring property prices has been one of the biggest causes of IHT increases.
Inheritance Tax: Nil-Rate Band
IHT is charged at 40% on the value of estates above £325,000. This is known as the nil-rate band.
Married couples and civil partners can inherit their spouse’s entire estate tax free. They can also add any of their spouse’s unused IHT allowance to their own to increase the potential nil-rate band of their estate.
If none of the first spouse’s tax free allowance is claimed, this means a couple can effectively pass on £650,000 before inheritance tax has to be considered.
The Residential Nil Rate Band
In addition to the inheritance tax (IHT) standard nil rate band a residence nil rate band (RNRB) was introduced from 6 April 2017. This is available when residential property is left to direct descendants.
Initially, the RNRB was set at £100,000 but increased by £25,000 each year until it reached £175,000 in April 2020. Just like the standard nil rate band, any unused RNRB on the first death of a married couple or civil partners has the potential to be transferable even if the first death occurred before 6 April 2017.
However, the RNRB does come with conditions attached and so may not be available, or available in full to everyone. To be eligible for the residence nil rate band the property must be your main home (i.e. it does not apply to buy-to-lets or holiday homes) and only applies where you are leaving your property to “direct descendants”.
It’s also worth noting that if a couple’s estate is worth more than £2 million the additional nil rate band tapers back down by £1 for every £2 above this limit.