Inheritance tax payable if the value of the estate is worth more than the inheritance tax threshold. Currently, the threshold stands at £325,000 – although this can change. The rate of inheritance tax stands at 40% on top of this threshold.
The executor of the will is responsible for ensuring any inheritance tax due is paid (this would be the administrator of the estate is there is no will).
How to Work out whether you need to Pay Inheritance Tax
You should identify all assets in the estate and have them valued if you need to. You should then add up the value of the assets and take away any debts owed – such as credit cards, loans, bills, etc. If the amount equates to more than £325,000, you may need to pay inheritance tax.
Married Couples and Civil Partnerships
If the deceased was married or in a civil partnership at the time of death, then the surviving partner can inherit the entire estate without having to pay any inheritance tax.
The surviving partner will also inherit your inheritance tax allowance, meaning that when he or she dies, they can now leave up to £650,000 without any tax being due. This is dependent on whether the whole estate has been left to the surviving spouse and other factors, however, it’s advisable to gain professional advice before presuming you can claim £650,000 of the estate tax free.
Gifts and Other Ways to Minimise Inheritance Tax
- Some people choose to ‘gift’ their assets to close family members or friends prior to their death. You can give as much as you want and, if you live for seven years after gifting them, they become exempt from any inheritance tax.
- However, if you die within seven years, inheritance tax will be due. The rate will depend on when you die.
Other gifts such as wedding gifts/civil partnership gifts of up to £5000.00 (from parents to children) are also exempt from inheritance tax
Property and Gifts
It’s a common misconception that you can gift property and then continue to live in it free of charge to avoid paying any tax. If you give away your property and then move to different accommodation, the gift will be exempt from inheritance tax after seven years. However, if you continue to live in the property you will be expected to pay the market rent – the owner will then need to pay income tax on this rent. If this does not happen the gift will be considered as a ‘gift with reservation of benefit’ and your loved ones may be subject to paying inheritance tax.
Complexities surrounding Inheritance Tax
There’s no doubt that inheritance tax is a confusing subject and potential minefield. With proper planning you could prevent or minimise the tax your loves ones will need to pay. It is always best to seek the professional advice of a solicitor or accountant to help you.
