Inheritance Tax: Something to think about

Nigerians love to own properties and some have inherited or bought properties overseas predominantly in London and the Home Counties in the U.K.

Many more are desirous of owning property as a second home or for investment, but what taxes apply in the U.K at the death of the owner?

Inheritance tax (IHT) Is a tax on the estate of someone who has died, including all property, possessions, and money.

When it was first introduced in the 1800s, it was intended to affect only the very wealthy but the rapid rise of home values in England has brought more families into the net in recent decades.

How much is inheritance tax?

Your estate won’t be liable if:

 *  The value of the estate is below the IHT threshold of £325,000

 *  You leave everything to your spouse or civil partner

 *  You leave everything to an exempt beneficiary e.g. Charity

Presently, inheritance tax is paid on the portion of a person’s estate worth more than £325,000 when they die. The rate is 40% on anything above that threshold, reducible to 36% if a minimum of 10% of the estate is left to charity.

So if your estate is worth £525,000, the IHT threshold is £325,000, the tax will be charged on 40% of £200,000 (£525,000 – £325,000). The tax would be £80,000.

Since April 5, 2017, a new tax-free main residence band has been introduced, also known as the Residence nil rate band (RNRB) but is only valid on the main residence. It is being phased in gradually starting at £100,000, which means a current total allowance for individuals of £425,000 (Original £325,000 band + new £100,000 increment) and for couples of £850,000 (£425,000 each). This additional allowance is only valid if the property is passing on to your children, step-children or grandchildren.

Between 2017 and 2020 the RNRB rises by £25,000 yearly, meaning that by 2020, the total additional allowance on pre-2017 levels would be £175,000, so a tax-free nil band rate of £500,000 for individuals and £1,000,000 for couples. On property values above the relevant band (£500,000 or £1,000,000), inheritance tax is charged as normal at 40%.

Who pays inheritance tax:

 *  If there is a will the executor arranges to make the payment

 *  If there is no will, the administrator arranges payment

Payment of the Inheritance tax is due six months after the passing of the donor, with interest charged by HMRC on payments made outside of this time window. Assets considered as part of your estate are cash in the bank, Investments, Property or business, Vehicles and payouts from life insurance policies and is valued after taking out your debts and liabilities.

Advice: Dealing with the death of a loved can be immensely painful without the added hassle of IHT, plan ahead to ease the burden.