How wealthy do you have to be to pay Inheritance Tax? The simple answer is not very, especially if you own your own home. According to the UK House Price Index published in June 2017 the average UK house price was £240,235 up from £228,430 in June 2016. With savings and investments, you could quite easily be liable for Inheritance Tax on your death, without feeling particularly wealthy.

How much before my estate has to pay Inheritance Tax?

To pay INHERITANCE TAX you need to own assets worth at least £325,000 if you are single or not married or £650,000 jointly if you are married or in a civil partnership. If your total assets are in excess of these amounts, before your estate can distributed to your chosen beneficiaries, assuming that you have a valid Will, tax of 40% will have to be paid on the excess amount.

Residential Nil Rate Band

However, a new allowance called the Residential Nil Rate Band will allow you pass on even more than that.

Your Inheritance Tax liability may be reduced by the Residential Nil Rate Band. If you have a partner and own a property and intend to pass the value of your estate to your direct descendants, that threshold has started to rise in stages and will reach a joint total of £1million by the tax year 2020.

Currently, passing on your home gives you an extra £100,000 to create a total individual allowance of £425,000, or a joint allowance of £850,000.

However, if your estate is worth over £2 million you will start to lose this additional allowance, tapered down at a rate of £1 for every £2 of estate value over this amount.

When a couple’s estate tops £2.5million at present – rising to £2.7million in 2020 – the home allowance disappears. However, they still keep their original nil-rate bands of £325,000 each.

So, what they give away with one hand they start to take away with the other.

Action Call

Are you concerned that you may have a large Inheritance Tax liability? Are you considering all options to legitimately and legally reduce the Inheritance Tax liability that would be payable on your death?

Now may be the time to consider your options. Calculating your tax liability, should be the starting point and investigating your options may just be what you need to put on your to do list for the coming year ahead.

If you would like to talk to about financial planning, please get in touch for a no-obligation meeting. Go to our website and contact us via our “Get in touch” form on our home page or Contact Martin Dodd on 01902 742221.

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It is advisable to take advice from a professional financial adviser when making major financial planning decisions.

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This article has been prepared in good faith and based on Midlands Investment Agency’s understanding of the law and interpretation thereof at the time of creation. The contents should not be regarded as specific advice and we always recommend that specific advice is sort from a qualified professional. No responsibility can be accepted by Martin Dodd or Midlands Investment Agency Ltd., for any loss that may occur by a person acting or refraining from acting on the basis of this article.

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