Inheritance tax – brief summary
Your let property will fall into your estate for Inheritance Tax Purposes. Normally the property will be taken into account when calculating your Inheritance Tax liability.
If the land is agricultural land then you may be entitled to Agricultural relief at either 100% or 50% and if the land or buildings are used wholly or mainly in your business (trading business not property business) then you may be entitled to claim Business relief at either 100% or 50%.
Most let properties will not be eligible for these reliefs.
If you make gifts to other individuals during your lifetime which exceed the annual exemption of £3,000 and you do not receive any benefit from those assets, they will normally be Potentially Exempt Transfers (PETs). When you die, to the extent that the nil rate band has not been used against chargeable transfers in the previous seven years, it is set off against any PETs again in the last seven years.
The remainder of the nil rate band is then deducted from the net chargeable assets (after reliefs and any amounts left to a domiciled spouse) in your estate and the balance is liable to Inheritance Tax at 40% (36% if 10% or more of the estate is left to charity).
Since 6th April 2009, the nil rate band has been £325,000 and the Government have proposed that it will remain at this level until at least 2025/26. Where a death occurs after 6th April 2020 there will be an additional residential nil rate band of up to £175,000 for the value of a main residence which is transferred to a direct descendant. The residential nil rate band is reduced by £1 for every £2 that the value of the estate is above £2million.
If you are married or in a civil partnership, provided that your spouse or civil partner is domiciled in the UK, you may transfer assets to him/her without any inheritance tax implications. To the extent that the then nil rate band has not been used on the death of the first spouse or civil partner (there are different rules if this is before 17th March 1986), additional relief is available on the death of the surviving spouse or civil partner in the same proportion.
Where all the assets are left to the surviving spouse or civil partner, on the second death the nil rate band at that time will be doubled. At the current rates, the maximum nil rate band on the second death is £650,000 (2 x £325,000) plus any residential nil rate band available (maximum £350,000).
This is a very brief summary of what can be a complex area of tax. We recommend you seek professional advice.
© Thandi Nicholls Ltd 2023 All Rights Reserved – The above articles are provided for guidance only and may not cover your personal circumstances so you should not rely on them. It is important that you seek appropriate professional advice which takes into account your personal circumstances where you can provide the full facts of the case and all documents related to your case. Thandi Nicholls Ltd t/a uklandlordtax.co.uk, S Thandi or M S Bains cannot be held responsible for the consequences of any action or the consequences of deciding not to act.
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