Guide to New Rules on Inheritance Tax in Northern Ireland (as of 2024)

New 2024 Rules for Inheritance Tax in Northern Ireland Explained

Inheritance Tax (IHT) is a tax on the estate (property, money, and possessions) of someone who has passed away. While the rules surrounding IHT are largely consistent across the UK, the rates and exemptions apply at a UK level, including in Northern Ireland. However, there are some aspects you may need to consider, especially with regard to recent changes in inheritance tax laws.

Here’s a guide to help you navigate the key inheritance tax rules in Northern Ireland, particularly focusing on the most recent changes.

1. What is Inheritance Tax?

Inheritance Tax is a tax on the value of a deceased person’s estate (property, money, and possessions) when it exceeds a certain threshold. If the total value of the estate exceeds the nil-rate band, then inheritance tax is charged at a certain rate (usually 40%).

2. Current Inheritance Tax Thresholds and Rates

As of April 2024, the standard rules and rates of IHT are as follows:

• Nil-Rate Band (NRB): The nil-rate band (the amount you can leave without paying inheritance tax) is £325,000 per individual.
  • This means that if the estate is valued at or below £325,000, there is no inheritance tax due.
  • For married couples or civil partners, this amount can be combined, allowing a £650,000 threshold if the surviving partner inherits everything. In some cases, unused thresholds can be transferred between spouses.
• Residence Nil-Rate Band (RNRB): A further exemption applies for the family home if it is passed to direct descendants (children, grandchildren, etc.). This is called the Residence Nil-Rate Band.
  • Current RNRB: £175,000 (as of April 2024).
  • This Residence Nil-Rate Band can be added to the £325,000 individual nil-rate band, meaning the total threshold could be as much as £500,000 for individuals with children or direct descendants.
  • For married couples or civil partners, the combined threshold can reach up to £1 million if both the nil-rate band and the residence nil-rate band are used.

Example:

• A married couple with children who inherit the family home and other assets valued at £1.2 million may have a combined inheritance tax-free threshold of £1 million (since both the NRB and RNRB can be transferred between them).
• Any value above this threshold would be subject to IHT at the rate of 40%.

3. Key Changes to Inheritance Tax Rules (Recent and Upcoming)

While the fundamental structure of inheritance tax has remained largely unchanged, the following developments may be important for those planning their estates:

1. a) Change in Thresholds:

The thresholds for the Nil-Rate Band and Residence Nil-Rate Band have been frozen until at least 2028. Previously, there were expectations for these amounts to rise with inflation, but the government has now committed to maintaining these limits for several years.

Impact: This means the thresholds will not increase to reflect the general rise in inflation or property values. As asset values increase, more estates may be subject to inheritance tax than in previous years.

1. b) Tapering of the Residence Nil-Rate Band:

The Residence Nil-Rate Band (RNRB) tapers down (reduces) if the estate exceeds a certain value.

• If the estate is valued at over £2 million, the RNRB is reduced by £1 for every £2 over this threshold. Therefore, an estate worth £2.3 million could see a reduced RNRB.
• The Residence Nil-Rate Band is only available when the family home is passed to direct descendants (children, grandchildren, etc.). If the family home is sold or gifted to anyone else (such as a spouse or sibling), this tax relief will not apply.

4. Impact of Inheritance Tax on Non-UK Residents (Including Northern Ireland)

For people who live outside the UK (but hold UK assets), IHT still applies to UK-based assets like property, land, and investments. The rules for non-UK domiciled individuals, who have assets both inside and outside the UK, can be complex.

• Non-Domiciled Residents: If you’re considered non-domiciled in the UK, only your UK-based assets are subject to inheritance tax. However, changes in the tax laws may affect this, and more people may be classified as “domiciled” based on their personal connections to the UK.
• Domiciled Residents: If you are deemed domiciled in the UK, your entire worldwide estate may be subject to IHT.

5. Tax Rate and Exemptions

• Tax Rate: The standard inheritance tax rate is 40% on anything above the threshold.
  • However, this is reduced to 36% if 10% or more of the estate is left to charity.

Key Exemptions from Inheritance Tax:

Certain gifts made during your lifetime may be exempt from IHT:

• Annual Exemption: You can give away up to £3,000 per year without it being subject to inheritance tax. This amount can be carried forward for one year, allowing you to give £6,000 in a single year.
• Small Gifts Exemption: Gifts worth £250 or less to any individual (as long as they don’t exceed £250 to the same person in a year) are exempt.
• Wedding Gifts: Gifts made to a couple on their wedding day are exempt up to certain limits: £5,000 from parents, £2,500 from grandparents, and £1,000 from others.
• Charitable Donations: Gifts to charities are completely exempt from inheritance tax, and they can also lower the overall rate of IHT due (to 36% if 10% of the estate is given to charity).

6. Business and Agricultural Relief

If you’re passing on a family business or agricultural property, certain exemptions can apply:

• Business Property Relief (BPR): This allows for up to 100% relief from inheritance tax on qualifying business assets.
• Agricultural Property Relief (APR): This allows for relief on agricultural land, buildings, and farmhouses, with a 50% to 100% exemption depending on the nature of the property and its use.

These reliefs are designed to ensure that family businesses or farms can be passed on without incurring large IHT charges that could force the sale of the business or land.

7. Planning for Inheritance Tax

Effective inheritance tax planning can help reduce the amount of tax due on your estate. Some key planning options include:

• Gifting: Regularly gifting assets, especially when done early, can reduce the value of your estate and the potential IHT liability. Consider making use of the annual exemptions.
• Trusts: Setting up a trust can help you pass on assets while potentially avoiding IHT. Trusts can allow you to retain control over assets while also benefiting from tax relief.
• Life Insurance: Many people take out life insurance to cover potential IHT liabilities, ensuring their heirs won’t be burdened with the tax bill.
• Pensions: The value of a pension is generally not subject to IHT. Pensions can be passed on to beneficiaries free of tax, making them an effective part of inheritance planning.

Conclusion

The rules surrounding Inheritance Tax in Northern Ireland are largely in line with the rest of the UK, and the key rates and exemptions have remained relatively stable, with a few notable changes (such as freezing the tax thresholds and the tapering of the Residence Nil-Rate Band).

If you are concerned about the tax implications for your estate, it’s always wise to consult with a financial advisor or solicitor who specializes in estate planning. Inheritance tax can be a complex area, and professional advice is essential to ensure you are using all available exemptions and reliefs.