exemptions

Inheritance tax (IHT), introduced in 1986, is a bit of a misnomer as it can apply to your lifetime gifts as well as to the value of your estate on your death.

Generally IHT is charged on your lifetime gifts except those that are exempt. Exempt gifts are, for example, gifts to your spouse/civil partner, to charities, annual gifts not exceeding £3,000, small gifts of £250, regular gifts out of income, gifts in consideration of marriage, potentially exempt transfers (gifts of any value if you survive seven years) and gifts up to the value of your nil rate band, which is presently £325,000.

IHT, on your death, is payable where your estate exceeds your nil rate band unless your estate passes to an exempt beneficiary, for example, your spouse or civil partner or to a charity. Where IHT is payable this can be mitigated in the estate of the surviving spouse/civil partner where the nil rate band of the first spouse/civil partner has not been wholly used. So if the nil rate band of the first spouse/civil partner to die is fully available IHT will only be payable if the estate of the surviving spouse/civil partner exceeds £650,000.

Staying with nil rate bands, for deaths after 5 April 2017, an additional nil rate band (in addition to the £325,000) will apply where a home is passed on death to a direct descendent. The maximum amount will be £100,000 in 2017/18, £125,000 in 2018/19, £150,000 in 2019/20 and £175,000 in 2020/21. From 2021/22 the threshold will rise in line with the Consumer Price Index. The additional nil rate band will be abated for net estates exceeding £2million.

If you are domiciled in the United Kingdom IHT applies to all of your property wherever situated. So remember that the value of your holiday home in France and your bank accounts there will be subject to the IHT regime. Even though it seems reasonable to assume that if you choose to retire abroad your estate would no longer be subject to IHT this is not necessarily the case. If you are not domiciled in the UK IHT applies only to your assets situated in the UK.