Calculate inheritance tax and estate tax obligations for the US and UK. Understand exemptions, thresholds, and plan strategies to minimize tax liability on inherited assets.
Estate & Inheritance Tax Overview
US Federal Estate Tax (2024)
- Exemption: $13.61 million per person ($27.22 million for married couples)
- Rate: 40% on amounts above exemption
- Portability: Unused exemption transfers to surviving spouse
- Step-up Basis: Inherited assets receive stepped-up cost basis
UK Inheritance Tax (2024-25)
- Nil Rate Band: £325,000 (frozen until 2028)
- Residence Band: Additional £175,000 for family home
- Rate: 40% above thresholds (36% if 10%+ to charity)
- Spouse Exemption: Unlimited transfers between spouses
State Estate Taxes (2024)
| State | Exemption | Top Rate | Notes |
|---|---|---|---|
| Connecticut | $12.92 million | 12% | Matches federal exemption |
| Hawaii | $5.49 million | 20% | Lower exemption |
| Massachusetts | $2 million | 16% | Cliff exemption |
| New York | $6.94 million | 16% | Cliff exemption |
| Washington | $2.193 million | 20% | No federal deduction |
Estate Planning Strategies
- Annual Gifting: $18,000 per recipient (2024) removes assets from estate
- Lifetime Exemption: Use $13.61 million exemption during lifetime
- Charitable Remainder Trusts: Provide income while reducing estate
- Grantor Retained Annuity Trusts (GRATs): Transfer appreciation at low cost
- Family Limited Partnerships: Discounted valuations for family transfers
- Life Insurance Trusts: Remove life insurance from taxable estate
Generation-Skipping Transfer Tax
- Rate: 40% flat tax on transfers to grandchildren and beyond
- Exemption: $13.61 million per person (2024)
- Purpose: Prevents skipping a generation to avoid estate tax
Frequently Asked Questions
What are the current estate tax exemptions and rates?
For 2024, the US federal estate tax exemption is $13.61 million per person ($27.22 million for married couples), with a 40% tax rate on amounts above the exemption. The UK inheritance tax has a £325,000 nil rate band plus £175,000 residence nil rate band for family homes, with a 40% rate (36% if 10%+ goes to charity). Twelve US states have separate estate taxes with varying exemptions from $1 million to $12.92 million. The federal exemption is scheduled to decrease significantly in 2026 unless Congress acts.
How does the unlimited marital deduction work?
The unlimited marital deduction allows unlimited transfers between US citizen spouses without estate or gift tax. This effectively doubles the exemption for married couples through 'portability' - unused exemption transfers to the surviving spouse. However, transfers to non-citizen spouses are limited to $185,000 annually (2024). The marital deduction only defers tax until the second spouse dies. Proper planning ensures both spouses' exemptions are utilized and may involve bypass trusts or lifetime gifting strategies.
What estate planning strategies can reduce inheritance taxes?
Effective strategies include: (1) Annual gifting ($18,000 per recipient in 2024) to remove assets from your estate, (2) Using lifetime exemption for larger gifts, (3) Charitable remainder trusts providing income while reducing estate, (4) Grantor Retained Annuity Trusts (GRATs) transferring appreciation at low cost, (5) Family limited partnerships with valuation discounts, (6) Life insurance trusts removing policies from estates, and (7) Generation-skipping trusts for multi-generational planning. Start planning early as many strategies require time to be effective.