Inheritance tax (IHT) is usually levied on the value of all the assets in an individual’s estate on death, after deducting any liabilities, exemptions and reliefs. Assets left to a spouse or civil partner of the deceased are usually exempt, as are assets left to a charity. In our latest forecast, we expect IHT to raise £5.3 billion in 2019-20. That would represent 0.7 per cent of all receipts and is equivalent to 0.2 per cent of national income. In 2015-16 (the latest year for which information is available), 24,500 estates were liable to inheritance tax – around 4.2 per cent of total UK deaths.
The rate of IHT is normally 40 per cent on the value of an estate above a threshold of £325,000. Any unused threshold may be transferred to a surviving spouse or civil partner, increasing their combined threshold to up to £650,000. This threshold is frozen until 2020-21, after which it increases in line with CPI inflation. Since 2017-18, there has been an additional transferrable main residence nil rate band of £100,000 (rising by £25,000 each year until 2020-21 and by CPI inflation after that) available when a home is left to children or other direct descendants. The rate of IHT is reduced to 36 per cent if 10 per cent or more of the net value of the estate above the threshold is left to charity.