Understanding Inheritance Tax – Rest Less

If you’re married, or have a civil partner, you can leave your entire estate to your spouse or partner free of inheritance tax. The good news is that transfers between spouses like this do not use up any of your nil rate band and in fact, your unused nil rate band can be transferred to your spouse or civil partner. For example, if your spouse left everything to you before they died, you’d typically have a larger estate when you die, but you could potentially also have a nil-rate band of £650,000 applied to the value of your estate – your own £325,000 nil rate band, combined with the transfer of your partners £325,000 nil rate band.

Example – Continuing the example above, if Penny chooses to leave her entire estate to her husband Jack, there is no inheritance tax due at the point of Penny’s death. Jack now not only owns his half of the property, but also the half he inherited from Penny – totalling £750,000. In addition to the £50,000 of savings he inherits from Penny, he has his own savings of £30,000 making a total savings pot of £80,000.

When Jack dies, his estate is worth £830,000 (£750,000 + £80,000). Because Penny did not use up any of her own nil rate band, Jack can transfer it to his own estate giving him a combined nil rate band of £650,000. Subtracting this from Jack’s total estate provides a taxable estate of £180,000 which is to be taxed at 40%. This leaves Jack’s estate with a total tax bill of £72,000. 

Author: wpadmin

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