Two allowances stand between an estate and the 40% rate. The nil-rate band of £325,000 is available to everyone. The residence nil-rate band of up to £175,000 applies where a main residence passes to children or grandchildren. Both are transferable between spouses and civil partners, so a couple may be able to combine allowances of up to £1 million.
Everything above the available allowances is taxed at 40%. On an estate of £2 million with the full £1 million of allowances available, that produces a liability in the region of £400,000.
The timing is often the harder problem. Inheritance tax is generally payable within six months of the end of the month of death, and it is usually payable before probate is granted. In practice that means the family may need to find the cash before they are able to sell the assets that would fund it.
The consequences of that sequencing are predictable. Some families borrow. Some sell in a hurry at a price they would not otherwise have accepted. Most, on reflection, wish the subject had been raised earlier.
Allowances, rates and reliefs are set by legislation and may change. The figures above reflect the position at the date of publication and should be verified before use with a client.