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Inheritance Tax – A helpful reminder

Published: 28 October 2022
Time to read: 2 mins

Following the passing of her majesty Queen Elizabeth II last month, it was revealed that our new monarch King Charles III, will not be subject to inheritance tax (IHT) on the assets inherited from his mother’s estate in his capacity as sovereign.

A rule introduced by the UK Government in 1993 confirmed that from monarch to monarch there should be “no question of taxing assets such as the royal palaces which the Queen owns as sovereign and not in a private capacity”.  It is understood that the rationale of this exemption is to give the Monarch sufficient financial independence from the Government of the day, although following in his mother’s footsteps, King Charles is expected to voluntarily pay income and capital gains tax.

With financial planning at the forefront for many at the moment, we have set out a helpful reminder of the current position around inheritance tax.

Standard legislation states that individuals start with a nil rate band (“NRB”) exemption of £325,000, which is not chargeable to IHT. For spouses (or Civil Partners) with children, you may also qualify for the additional Residence Nil Rate Band (“RNRB”) – which is £175,000 per person. To qualify for the RNRB, an individual must leave their main residence to a “direct descendant” (i.e. child/grandchild). The NRB and RNRB is also transferable between spouses on death, therefore with these two exemptions couples could have a combined tax-free allowance of £1 million.

Anything in excess of these exemptions will be chargeable to IHT at 40% on death.

For cohabitants, however, the position is less favourable. Unmarried partners are a non-exempt beneficiary and therefore, any bequest in their favour will erode your NRB and, if your estate is greater than the available NRB, inheritance tax will be payable. Moreover, cohabitants have no automatic claim if their partner dies without a Will, so it is vitally important that if you intend for your partner to inherit from your estate, that you have a Will in place.

The IHT position for clients can, of course, vary depending on their individual circumstances. For those with larger, more complex estates, there are ways to mitigate possible IHT payable by taking expert advice.

If you have any questions regarding this article or wish to discuss your own tax planning, we can help.


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