£5.1bn paid in inheritance tax last year – 5 steps to cut your bill

This article is not personal advice. If you’re not sure whether an investment is right for you please speak to a financial adviser. Tax rules can change and the benefits depend on individual circumstances.

The residence nil rate band frees 20,200 people from inheritance tax

Over £5.1bn was paid in inheritance tax (IHT) last tax year – a 4% fall from the previous tax year. This is the first fall we’ve seen since 2009/10 and is most likely because of the impact of the residence nil rate band (RNRB).

The RNRB was introduced in 2017/18, available when residential property is left to direct descendants, in addition to the standard nil rate band of £325,000. This is the first time we’ve been able to see whether it’s had an impact on IHT receipts.

• 24,200 estates paid inheritance tax in 2017/18 – down 14% in a year from 28,100
• 20,200 estates used the RNRB threshold in 2017/18, with £3.1 billion of chargeable estate value sheltered from an IHT charge as a result.

The residence nil rate band has freed twenty thousand people from inheritance tax – but it hasn’t stopped the taxman taking a £5.1 billion bite from our wealth in the last tax year.

The overall IHT bill is still pretty hefty because the RNRB has very little impact on the tax collected from larger estates. These large estates also start to lose the benefit of the RNRB as soon as their estate is over £2 million, so the very biggest taxpayers don’t get the relief at all.

But you don’t have to be enormously wealthy for your family to pay over the odds after you’ve gone. There are steps we should all be taking to take advantage of the reliefs while we can, to protect our loved ones from a needless tax bill later.

5 steps to cut your inheritance tax bill

1. Write a will. One common approach is for a married couple to have mirror wills. That means on the death of the first person, everything is left to their spouse. So there’s no inheritance tax to pay on first death and the inheritance tax bands can be passed on too.

2. Leave property in the way that makes full use of the RNRB. By passing the property to your spouse on your death, and them passing it to children, you could leave £350,000 or more in property without it being subject to tax (in addition to your nil rate band).

3. Consider your annual allowances. You can give away £3,000 in gifts each year which are immediately out of your estate for IHT purposes, and make small gifts of up to £250 per person – plus wedding gifts. You can give unlimited regular gifts from income – as long as they don’t impact your standard of living. You can also give one-off gifts of any size, and as long as you live for at least seven years afterwards – they’ll then be out of your estate for IHT purposes.

4. Consider your pension. It can be passed free of inheritance tax, so think about spending assets outside your pension before dipping into your pot.

5. Don’t forget your parents, and their arrangements too. Skipping a generation and leaving cash to grandchildren reduces the risk of being taxed twice.

There are plenty of other ways to pay less inheritance tax. You can find expert hints and tips in our guide to saving inheritance tax.

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Remember this article or our guide aren’t personal financial advice. Tax is a complex area so take specialist advice if you’re at all unsure.

Want to talk it through?

If you think you could be affected by IHT one thing is certain, the sooner you act the better placed you are to reduce the potential impact.

Tax rules and benefits are constantly changing and their effect depends on your circumstances. Our advisers can make sure you’re up to date and are making the most of your personal allowances. While our advisers can help you make the most of any allowances, they aren’t tax specialists.

We won’t waste your time or money. Book your call back and we’ll help you understand whether you’ll be affected, and whether you could take action to reduce it. If it’s right for you, we’ll book your free initial consultation with a financial adviser.

There’s no pressure to take advice, but if you choose to do so there will be a charge, which we’ll discuss with you.

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