As part of the estate planning process when having a new Will written, or when having an existing Will reviewed, your estate's potential liability to inheritance tax should be assessed. There may be certain actions which can be taken to reduce a potential liability to inheritance tax.
In simple terms, if the total value of your net estate is over the current inheritance tax nil rate band threshold of £325,000, your estate will be liable to pay 40% inheritance tax on the amount which exceeds £325,000.
Legislation now allows married couples / civil partners to claim the unused inheritance tax nil rate band on the first death. This can double the nil rate band on second death, where all assets pass to the surviving spouse at the first death. For many couples this may mean there is no inheritance tax to pay, as the total estate will be below £650,000.
However, there are still many estates which would potentially be above this threshold of £650,000, especially when considering life assurance policies and death in service benefits in addition to property and other assets, and it is therefore sensible to look at ways to mitigate the potential liabilities to inheritance tax if possible.