Inheritance Tax in the UK

UK property held by both resident and non-resident individuals (from 1 April 2017) will potentially be subject to inheritance t ax (IHT) at 40%, if held at death and may be subject to IHT at 20%, if gifted during life time. A number of reliefs and exemptions are available that may reduce or even eliminate the tax charge.

Lifetime gifts

Outright lifetime gifts of property to individuals will be exempt from IHT. Other lifetime gifts (for example into a Trust) will be subject to IHT at 20% to the extent that the value of the property exceeds the individual’s nil rate band, which is currently £325,000.

The nil rate band resets every 7 years so gifts of property worth up to £325,000 could be made every 7 years without IHT becoming due. However, if the donor dies within 7 years of making a gift, I HT could retrospectively become due on a tapered scale if the remainder of the donor ’s estate exceeds the nil rate band.

On death

UK domiciled individuals will be subject to I HT on their entire worldwide estate, whereas non-domiciled individuals will only be subject to IHT on their UK property (including real estate).

If there have been no lifetime gifts during the 7 year s before death, the nil rate band of £325,000 should be available and IHT will be charged on the value of the estate in excess of this amount. Assets left to spouses and civil partners are generally exempt from IHT, unless the transferee is not UK domiciled but the transferor was.

Reliefs from IHT of 100% or 50% may be available for relevant business proper ty or agricultural property . Real es ate held for the purposes of a trade may qualify for relief, but property held for investment purposes will not.

An additional residential nil rate band of up to £100,000 may be available where a main residence is passed down to direct descendants, if the deceased’s estate does not exceed £2 million

Article by Ralph Mitchison, Parter at Menzies, member of HLB’s Real Estate Group. Contact Ralph on This email address is being protected from spambots. You need JavaScript enabled to view it.