What is Inheritance Tax?
Inheritance Tax may be payable on an estate when somebody dies. When it comes to your inheritance though, it might be a good idea to check out someone like Albertson & Davidson, LLP to make sure that you will get your inheritance (just in case something goes wrong).
Your estate is made up of the value of all the assets that you own at the date of your death, less any debts that you have.
What is Inheritance Tax payable on?
Inheritance Tax is payable on your estate. You calculate the value of your estate by adding up your assets such as your:
- money and investments
and then deducting
- any debts the deceased may have owed, including household bills and funeral expenses.
Inheritance Tax Threshold
Inheritance Tax in only payable if the value of an estate exceeds the threshold. The threshold is currently £325, 000.
Married couples or those in civil partnerships have an increased threshold.
Registered civil partners and married couples can effectively increase the threshold of their estate. Following the death of the first spouse or civil partner, the unused percentage of their Inheritance Tax threshold can be used against the estate of the second spouse or partner when they die.
Following the death of the second spouse or partner, the executors or personal representatives can claim to transfer the unused percentage of the first spouse or civil partner’s unused Inheritance Tax threshold to the second spouse or civil partner.
Inheritance Tax rates:
If the value of the estate exceeds the threshold of £325, 000, then tax is payable at
40% of the amount above the threshold
36% above the threshold, if the estate qualifies for the reduced-rate because of a charitable donation.
In order to qualify for the reduced rate (36%) of Inheritance Tax , a person must leave at least 10% of the net value of their estate to a qualifying charity. (The net value of an estate is the sum of all assets after deducting any debts, reliefs, liabilities, exemptions and the IHT threshold).
Who is responsible for paying Inheritance Tax?
Inheritance Tax is paid by different people in different circumstances. But, usually it is paid by the
personal representative using the funds from the estate
trustees on assets in, or transferred into, a trust.
In many instances, inheritance tax is paid by people who have received gifts, or who inherit assets from the deceased.
Inheritance Tax Exemptions and Reliefs
There are numerous ways of legally avoiding paying Inheritance Tax. There are also numerous exemptions and reliefs you may get. I have written an article which you can find here on ways you can reduce your inheritance tax expeditions and liabilities.
In short, some reliefs are: (for more detail, go to this article)
- Souse or Civil Partner Exemption.
- Charity exemption.
- Annual Exemption.
- Potentially Exempt Transfers (7 year rule).
- Small Gift Exemptions.
- Wedding and Civil Partnership gifts.
- Business Relief.