RMH Associates
Business & Accountancy Services

Inheritance Tax

The Government has announced the IHT nil rate bands for 2009/10 - £325,000 2010/11 - £350,000
Lifetime gifts
Where tax is payable on a lifetime gift (other than those taxable only because they are made within 7 years of death) tax is charged at 20%

Most lifetime gifts are only charged to inheritance tax if made within 7 years before the donor's death.
In excess of the nil rate band they are charged on the following scale
Years between gift and taxReduction in taxEffective Tax rate
Main exemptions
Non domiciled spouse£55,000
Annual gifts per donor£3,000
Small gifts per donee not exceeding£250
Marriage gifts by parent£5,000
Marriage gifts by other relative£2,500
Other marriage gifts£1,000
Charities/political partiesUnlimited
Business and agricultural relief
Interest held for more than two years in a business, farm or shares in qualifying unlisted companies and let farmland held for more than seven years100%
Assets used by qualifying company or business, or controlling holding in listed company50%

It is now possible to transfer unused nil-rate band allowances between spouses or civil partners.

For individuals who die on or after 9 October 2007 a claim may be made to utilise any unused nil rate band from their deceased spouse or civil partner's estate.

The amount of the nil rate-band potentially available for transfer will be based on the proportion of the nil-rate band unused when the first spouse or civil partner died.

If on the first death the chargeable estate is £156,000 and the nil-rate band is £312,000, then 50% of the original nil-rate band is unused. If the nil rate band when the surviving spouse dies is £350,000, then that would be increased by 50% to £525,000.