How to make the most of unused inheritance tax allowance
By Kirsten Hastings, 15 Aug 17
The UK tax office has recently updated its rules for transferring any unused portion of basic and additional IHT thresholds when the first person in a marriage or civil partnership dies.
The basic tax-free threshold available when a spouse or civil partner dies can be increased to as much as £650,000 ($843,933, €715,226) if none of the £325,000 threshold was used when the first of the couple died.
The basic threshold that is available to their estate is increased by the percentage of the threshold that was not used when the first partner died.
Example
Paul dies leaving legacies totalling £600,000. He leaves £130,000 to his children and the rest to his wife.
The available threshold at the time was £325,000.
The legacies to the children would use up 40% (£130,000 ÷ £325,000 x 100) of the threshold, leaving 60% unused.
When his wife dies, the threshold is still £325,000, so their available threshold would be increased by the unused percentage (60%) to £520,000.
If his wife’s estate isn’t worth more than £520,000 there’ll be no IHT to pay when she dies. If it’s worth more, IHT should be paid on anything above £520,000.
Transferring any unused basic threshold
The estate’s executors must claim to transfer the unused basic threshold when the husband, wife or civil partner dies.
Click through to read about the additional IHT threshold…
Tags: IHT
