Inheritance tax is becoming more of a concern to families due to frozen tax allowances and rising house prices.

While the latest figures show less than four per cent of estates paid inheritance tax in 2020/21, there’s concern more will be at risk of paying the levy in the future.

With plenty of small print affecting how inheritance will be taxed, families may want to consider how to make use of tax allowances earlier rather than later.

The first £325,000 of an estate is exempt from inheritance tax, an allowance known as the nil-rate band, and some may be able to increase their tax-free allowance further.

For example, the residence nil rate band is currently frozen at £175,000 per person, meaning people could potentially pass an estate worth £500,000 to their loved ones without being caught by inheritance tax.

Married couples and civil partners can increase this allowance by transferring the unused allowance to the surviving partner.

Zoe Till, chartered financial planner and partner at the leading East Midlands law firm Nelsons, explained: “The amount of any unused nil rate band can be transferred to the survivor of the marriage or civil partnership to increase the value of the nil rate band available on their death, meaning that up to the first £650,000 of their combined estate is IHT-free.

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