Navigating the complexities of inheritance tax can be overwhelming, especially with the recent updates to the Inheritance Tax IHT400 form. This form is crucial during the probate or confirmation process when inheritance tax is owed or when the deceased’s estate does not qualify as an ‘excepted estate.’ As of 25 February 2025, HMRC has made significant revisions to the guidance pertaining to inheritance tax nil rate bands, limits, and rates. For those dealing with estates, it’s essential to stay informed about the latest changes.
What is Inheritance Tax and Why is the IHT400 Important?
Inheritance tax is imposed on an individual’s estate upon their death and can also apply during their lifetime on specific trusts and gifts. The key point to remember is that an estate is liable for inheritance tax when its value exceeds the nil-rate band, which currently stands at £325,000. If a person’s estate exceeds this amount, the Inheritance Tax IHT400 form must be completed as part of the probate process.
Using the IHT400 form is necessary for estates facing inheritance tax liabilities. Particularly for those estates that do not meet the criteria of an ‘excepted estate,’ this form helps in calculating the tax owed, claiming any applicable reliefs, and facilitating the settlement of the estate’s affairs.
Recent Changes to IHT400: Rates and Tables
As of 25 February 2025, HMRC updated its guidance regarding inheritance tax IHT400 updates, specifically concerning interest rates applied to calculations of inheritance tax. Notably, the interest on inheritance tax payments is now charged at 7%, while interest on tax repayments has been revised to 3.5%. These changes may significantly affect financial planning for estates, emphasising the importance of seeking advice from a qualified professional.
Inheritance Tax Rates and Allowances
The inheritance tax rate remains a steep 40% on death and 20% on lifetime gifts. For individuals to avoid this hefty tax on their estates and gifts, understanding the nil-rate band is crucial. As mentioned previously, estates valued below £325,000 are exempt from inheritance tax.
Additionally, the main residence nil-rate band (RNRB) offers considerable savings for some estates. This allowance provides an extra £175,000 per person for married couples and civil partners, as long as their main residence is transferred to direct descendants—such as children or grandchildren—after their death. The RNRB is a beneficial supplement to the £325,000 inheritance tax nil-rate band, and understanding how it applies can make a significant difference in the final estate value.
Available Inheritance Tax Reliefs
Fortunately, there are several inheritance tax reliefs available to ease the financial burden of taxes on estates. One such relief is the reduced rate of 36% on inheritance tax if 10% or more of the net estate is donated to charity. By making charitable donations part of an estate plan, individuals can reduce their tax liabilities while contributing to causes they care about.
Furthermore, reliefs also exist for business property and agricultural property, which can provide substantial financial advantages to the beneficiaries of those assets. Understanding and leveraging these reliefs can help minimise inheritance tax bills and preserve wealth for future generations.
Seeking Professional Guidance
Given the complexities of the inheritance tax system and the recent updates to the Inheritance Tax IHT400 form, it is highly advisable to seek guidance from financial professionals. At Simply Accounts Accountant Chester, Accountant Congleton, Accountant Preston, Accountant Altrincham, Accountant Warrington we specialise in estate planning and inheritance tax advice, ensuring our clients navigate these regulations confidently. Our expertise can help identify which strategies will minimise liabilities and maximise the benefits of inheritance tax reliefs.
In conclusion, managing inheritance tax requires a thorough understanding of the latest laws and updates, especially the changes to the IHT400 form and interest rates. With the inheritance tax rates being as high as 40%, utilising all available allowances and reliefs can lead to significant savings. As you plan your estate or handle the affairs of a loved one, consider consulting with knowledgeable professionals like Simply Accounts Accountant Chester for tailored advice and support. By doing so, you can ensure that your estate is managed effectively, and tax liabilities are kept to a minimum.