Inheritance Tax – a tax on the estate of someone who’s died – is often referred to as the “death tax”. This form of tax is generally unpopular, and the standard rate is currently 40 percent.
Explaining the new rules, Ms Suter said: “The limit of how much you can leave before your estate pays the 40 percent tax has been increasing gradually since a new allowance was first introduced in April 2017, meaning anyone with residential property was given an extra Inheritance-Tax-free allowance.
“It will go up one final time in April to £175,000 per person, on top of the existing £325,000 nil-rate band.”
So, what does this mean in terms of Inheritance Tax bills?
Ms Suter continued: “This means that including the standard nil rate band, from April a couple can leave a property worth £1million entirely Inheritance Tax free.
“As with all these things there are some tricky rules you have to stick to, so the property must be left to a child, grandchild, or step versions, and those with lots of money and assets won’t get the full amount, as anyone with an estate valued at more than £2million will lose the allowance by £1 for every £2 they are over this limit.”
Inheritance Tax thresholds
Normally, there’s no Inheritance Tax to pay if either of the following apply:
- The value of the estate is below the £325,000 threshold
- The person leaves everything above the £325,000 threshold to their spouse, civil partner, a charity, or a community amateur sports club.
Regardless of whether the estate’s value is below the threshold, it must still be reported to HM Revenue and Customs (HMRC).
Should a person give their home to their children or grandchildren, then their threshold can – following the rise on April 6, 2020 – increase to £500,000.
Additionally, if a person who is married or in a civil partnership and whose estate is worth less than their threshold dies, any unused threshold can be then added to their partner’s threshold.
This means that for couples in this situation, the threshold can be as much as £1million.
Another change which has come into effect today is the increase to the Junior ISA annual allowance – something which was announced by Chancellor of the Exchequer Rishi Sunak in the 2020 Budget last month.
Ms Suter said: “Parents will see a massive jump in the amount they can put away in a Junior ISA, with the annual limit more than doubling from the current £4,368 to £9,000.
“The increase in allowance means a parent starting saving next month for a newborn child could build a tax-free pot of more than £240,000 by the time their child reaches 18, assuming they put the maximum £9,000 in each year and it grows by four percent every year after charges.
“In reality, few families will be able to afford the £750 monthly contribution that’s required to hit this limit, particularly if you consider that the current average contribution amount is just under £1,000 a year.”