Know your worth

When it comes to inheritance tax, each individual has a nil-rate band allowance of £325,000 (assuming they have not made significant lifetime gifts within the seven year period running up to their date of death) before inheritance tax is due to be paid on their estate. For a married couple, provided that the whole estate is left to each other on the first death, on the second death the nil-rate band allowance will be £650,000.

There is also a residence nil-rate band allowance, which provides a further £175,000 relief for each person, provided that they are leaving a property that they have lived in, to direct descendants, such as their children or stepchildren. It is important to note that this does not include their cohabitee’s children, as these are not classed as direct descendants.

This means that each individual homeowner could have a threshold of £500,000 before inheritance tax is due on their estate, and married homeowners could have up to a £1m threshold, on the second death, before tax is due.

An inheritance tax account is used to calculate the value of your assets upon your death. These include everything in your sole name and joint names, for example, your home and any other properties that you own, such as rental properties or second homes, bank and building society accounts, ISAs, investments, shares, bonds, insurance policies, National Savings & Investments, personal effects, and so on.

When planning, therefore, it is important that you know the approximate value of your assets, as these thresholds can soon get eaten up, especially if you own several properties, or you have assets that pay out when you die.
If you think that inheritance tax will be an issue for your estate when you die, then there are many things that you can do to plan for this.