How to minimise the impact of inheritance tax

It’s known colloquially as the death tax, and for good reason.

Inheritance tax – the bane of modern life – dates back to 1894 when the Government introduced estate duty (a tax on the capital value of land) in a bid to raise money to pay off a multi-million pound deficit. Its 21st century incarnation includes a tax on property, money and other assets of someone who has passed away.

The thing about inheritance tax (IHT) is this: no one really understands it, and the complexity is not helped by the Government’s constant tinkering around the edges. Put simply, everyone has a tax-free allowance, known as the ‘nil rate band’. The tax-free threshold for the current 2016-17 tax year is £325,000 where it has been since 2009.

Married couples and civil partners can pass their estate or the unused balance of the tax-free allowance to their spouse tax-free when they die so the surviving partner can double the threshold before IHT becomes payable to £650,000.