HMRC has updated its guidance on inheritance tax (IHT) interest rates with the new rates of 4.75% for late payments and 1.25% on repayments from 11 October 2022.
What is Inheritance Tax (IHT)
Inheritance tax is essentially what your heir(s) to your assets have to pay, which could lead to up to 40% of your estate.
Avoiding IHT (Inheritance Tax)
There are ways to move past and avoid inheritance tax. Offering assets as gifts can be tax-free, to charity, family, or your spouse. This is the case if the ‘gift’ was made several years before the death, and was not given to a business or trust.
Interest/Repayment interest rise
Before August 2022, the repayment interest was 0.5% for about 6 years. On the 23rd of August 2022, it rose to 0.75 and since the 11th of October, the rise in repayment interest went to 1.25%.
The standard interest rate had always fluctuated with the 2% bracket with it teetering into the 3% bracket on the odd occasion. However, from January 2022 it has risen significantly at a slightly rapid rate, currently standing at 4.75%.
Who pays for it?
For those who are married, the rules differ.
Those who are married or in a registered civil partnership are exempt from inheritance tax. Upon the death of the partner, this will be automatically implemented once the right documents are sent to HMRC (this is done by the executor of the will).
Nil rate band
The current nil rate band sits at £325,000 which will remain unchanged until the 5th of April 2026. The nil rate band is the amount before inheritance tax must be paid. For this instance, anyone with any assets under the threshold of £325,000 does not have to pay any IHT (inheritance tax). This current threshold has been implemented since 2009.
We hope this breakdown of the IHT threshold has helped.
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This guide is an informative piece and does not constitute tax advice for individual matters.