Inheritance tax is a 40 percent charge levied on estates above a certain threshold. If a person dies and their assets are being passed on, the 40 percent will usually be taken off from the estate itself before it reaches the intended beneficiary.
Mandy Casavant, a Senior Associate in the Private Client practice at law firm Royds Withy King, provided a broad overview of how inheritance tax works and how family dynamics can affect it: “Very broadly, inheritance tax is charged at 40 percent on estates valued at over £325,000 or £650,000 for a married couple.
“There is an additional banding given where the deceased passes on their residence to descendants of £175,000 or £350,000 for a married couple.
“Certain conditions and rules apply to these figures, so advice ought to be sought in each case.”
Teachers and supermarket staff are considered “key workers”
Coronavirus has forced the government to take action
As Mandy highlighted, there are certain rules in place which can impact the amount owed from inheritance tax and recently the government made additional changes to some of these rules.
In mid-April, the state confirmed that emergency service workers will be exempt from paying inheritance tax if they die from coronavirus as a result of working in the line of duty.
These changes are expected to primarily affect older doctors returning to work to support the coronavirus effort.
While exemptions like this have always existed for certain professions, the state have indicated that they may extend it further, as Mandy explained: “There has always been an exemption from inheritance tax for emergency workers and serving military personnel who die in active service or through their work, known as the ‘blue light exemption’.
“This exemption applies to doctors and nurses, paramedics, ambulance staff and those transporting blood and organs, but not to care workers.
“HMRC, recognising the sacrifice many care workers have and will make, has indicated that it will extend this exemption to employees of publicly funded care homes, home care workers, and to those employed by charities providing a service to combat Covid-19.”
“This front liner relief will, importantly, extend not just to those carers who lose their life now but to those who lose their life at any point in the future if a clear link to the coronavirus can be proven.”
IHT is often discussed and debated
While this broadening of scope will likely be welcomed, it should be noted that it may not benefit as many people as intended.
Carers are among some of the most treasured workers in the UK right now as they risk their health to look after the most vulnerable.
Despite this, it is an unfortunate reality that their wages are unlikely to be high.
On top of this, it is unlikely that many carers have assets that place them into the chargeable threshold of £325,000.
Rising property prices have made IHT a real problem for many
However, while it may be limited in its effectiveness, Mandy recognised the effort the government have made and he urged them to extend the exemptions to others: “Whilst it is recognised that many carers are amongst the lowest paid in the sector with estates that would likely fall outside of inheritance thresholds, it is a welcome move by HMRC.
“It has yet to be tested how far this ‘blue light exemption’ will go.
“We would urge HMRC to extend the same exemptions to other key workers who may contract Covid-19 and lose their life as a result of the service they have provided.”
Impartial advice on inheritance tax can be sought from the likes of the Money Advice Service or Citizens Advice