THE COST OF DYING – INHERITANCE TAX

The concept that a Government should be able to tax people when they die goes back many centuries as even Julius Caesar had a form of death tax.

However, it really surfaced in the UK in 1796 when “death taxes” were used to finance the war against Napoleon Bonaparte. We have been subject to one form or another of a tax on death since then.

Currently those who die and leave an estate are taxed at 40% on the value of the estate, i.e. the total value of all that a person owns, in excess of £325,000. If they leave their estate to a spouse or civil partner, there is no tax chargeable at that point. When the surviving spouse or civil partner dies, their £325,000 allowance can be added to their partner’s unused £325,000 Inheritance Tax Allowance. Thus tax is only then due on the amount of the estate in excess of £650,000.

The headlines from the July Budget was that the Chancellor would be protecting a family’s estate for up to £1,000,000. While that is good long range news, the facts are as follows:

• The current allowance (nil-rate band) of £325,000 is being frozen at £325,000 for the next two years.

• The increased allowance will only be phased in from April 2017 starting with an extra £100,000. That means it will not be until 2021 when the headline promised £1,000,000 provision would become available.

• The extra allowance will only be available to use in relation to residential property being passed on to children and their direct descendants.