Inheritance tax (IHT) is a tax that is levied on the estate of a deceased person It is important to understand how this tax applies to property, as property is often one of the most valuable assets that someone leaves behind when they pass away In this article, we will explore the basics of inheritance tax on property and how it may impact you and your loved ones.
When a person passes away, their estate is evaluated to determine its total value This includes all assets such as cash, investments, personal belongings, and property Inheritance tax is then calculated based on the total value of the estate, with specific rules and exemptions that apply to property.
In the UK, inheritance tax is currently set at 40% on estates valued over £325,000 For married couples and civil partners, the nil-rate band can be transferred to the surviving spouse, effectively doubling the threshold to £650,000 This means that if the total value of the estate is below this threshold, no inheritance tax is due.
However, when it comes to property, there are additional considerations to keep in mind One major factor is the rise in property values over the years, which has led to more estates being subject to inheritance tax This has become a growing concern for many homeowners, especially those living in areas with high property prices.
There are certain exemptions and reliefs that can help reduce the inheritance tax liability on property One of the most common reliefs is the ‘main residence nil-rate band’, which was introduced in April 2017 This allows individuals to claim an additional tax-free threshold on their main residence when it is passed on to direct descendants, such as children or grandchildren.
The main residence nil-rate band currently stands at £175,000 per person, and is set to increase to £175,000 by 2020/21 iht on property. When combined with the standard nil-rate band of £325,000, this means that a couple can potentially have a tax-free threshold of up to £1 million on their property However, there are certain conditions that must be met in order to qualify for this relief.
For example, the property must have been the deceased’s main residence at some point and must be passed on to direct descendants Any additional properties, such as buy-to-let or second homes, do not qualify for the main residence nil-rate band It is also important to note that the relief is tapered for estates valued over £2 million, and ultimately will not apply for estates valued above £2.25 million.
Another important consideration when it comes to inheritance tax on property is the ownership structure Jointly owned properties are typically subject to special rules, especially when it comes to passing on the property to the surviving owner In most cases, joint tenancies with rights of survivorship will automatically transfer ownership to the surviving owner, effectively bypassing inheritance tax.
However, properties owned as tenants in common will be subject to inheritance tax on the deceased’s share of the property This means that if you own a property as tenants in common with someone else, you may want to consider setting up a trust or making other arrangements to minimize the tax liability on your share of the property.
In conclusion, inheritance tax on property can be a complex and often confusing topic It is important to seek professional advice to ensure that you are making the most of the available exemptions and reliefs By planning ahead and understanding how inheritance tax applies to property, you can help minimize the tax liability on your estate and ensure that your loved ones are taken care of when you pass away.