Prior to the Autumn Statement on 22nd November 2023 there was speculation that the Chancellor could make changes to Inheritance Tax, albeit the rumoured changes varied in their scope. In the end, the changes were nothing more than rumours; but what exactly is inheritance tax and where did it come from?
Inheritance Tax, in various forms, has existed for several centuries going as far back as the Stamps Act of 1694 which established a Probate Duty. There were various legislative changes however the next significant change came about in 1894 when Probate Duty was replaced by Estate Duty which remained in place until its abolition in 1975 at which time Capital Transfer Tax was introduced. Inheritance Tax as we know it today was introduced in 1986.
Whilst we can see that Inheritance Tax, or similar policies, have existed for over three hundred years, looking further back in history we can see that the idea of a cost being paid on death has existed for much longer.
In medieval England, a principle of ‘heriot’ meant that on death the family of the deceased would have to make a payment of sorts to keep the land on which they lived or worked. For the lower ranking classes in the feudal system the payment would often be in the form of an animal or personal possession of value. For the classes higher up the feudal system a payment of ‘feudal relief’ would be paid in order for their descendants to retain the land-holding.
Inheritance Tax as we know it today, is charged on a person’s estate, at a rate of 40%, however not all estates will have a tax bill to pay. An individual person’s estate up to £325,000 will be taxed at 0%. The figure of £325,000 can be reduced if the individual gave away money or belongings in their lifetime. Some estates will also be eligible for an additional exemption from tax where a main residence property passes to their descendants. This can result in up to a further £175,000 being taxed at 0% taking the total exempt portion of the estate to half a million pounds.
Understanding how the inheritance tax rules may apply to your own affairs can be an important part of estate planning and how you may choose to write or update your Will.
The contents of this post do not constitute legal advice and are provided for general information purposes only ■