What Is Inheritance Tax? Inheritance tax is a tax on the estate of someone who has passed away.
The amount that is paid will depend on the total value of the estate when all relevant assets that qualify for inheritance tax (IHT) have been calculated.
This includes any properties they own, the cash they have in savings and in the bank, investments, any vehicles they own, any life insurance policies and any other assets.
Before the final figure is calculated, any debts and liabilities are taken away and IHT is then worked out based on that figure.
If you would like to be connected to a specialist inheritance tax solicitor near to where you live or work, please either call us now on 0845 1391399 or complete a Free Online Enquiry.
What Is Inheritance Tax UK?
Inheritance tax takes a percentage of the total of any inheritance above £325,000 from the estate.
It’s worth noting that there are exemptions, such as if:
- The total value of the estate is less than £325,000
- The deceased leaves anything over and above the £325,000 IHT threshold to their spouse, civil partner, or charity
IHT is paid at 40% of anything above the £325,000 threshold, so it’s not an insignificant amount in many cases.
The threshold might be higher depending on your circumstances, such as if you’re married or in a civil partnership. That’s because if your spouse or civil partner dies, you’re exempt from paying inheritance tax if all their assets are left to you.
Inheritance tax allowances increase by the percentage of the allowance that wasn’t used by a spouse of civil partner, which means that when you add the total value of the two £325,000 tax-free allowances AND the £175,000 main residence allowances, you can potentially have a £1 million tax-free allowance.
What Is The 7 Year Rule In Inheritance Tax?
The 7-year rule in IHT means that if an individual passes away within 7 years of gifting money, possessions or property to anyone that is not their spouse, civil partner or a charity, then the value of the gift will be added to the estate to work out what IHT is payable.
Gifting assets is incredibly common in families and it’s often a good way of protecting property, investments and other significant sums from being liable to inheritance tax after you die.
But crucially, any gift that is handed down must happen at least 7 years BEFORE you die to ensure that it isn’t liable for inheritance tax.
There has been talk for some time about reducing the length of time on the gifting rule, with 5 years mooted, but currently, the rule remains at 7 years and it’s worth bearing in mind before making any significant gifts.
Many people use it as a legitimate way to protect assets and ensure that loved ones can make the most of them but it’s often wise to wait 7 years before doing anything with it just in case the worst should happen.
For example, if you were to gift a property to one of your children in 2022, it would make sense to wait until 2029 before selling the property if that’s the plan just in case you earmark the money for something else in the meantime. Because otherwise, the cost of the inheritance tax could reduce the value of the estate if it’s included in the calculations.
What Is The Inheritance Tax Threshold
The inheritance tax threshold is £325,000, which means that anything above this figure in the estate will be taxed at 40%.
IHT is only paid after probate has been granted and the estate has been divided as per the deceased’s wishes, so there’s no significant upfront costs before assets have been released.
It’s helpful to calculate the total value of the estate before seeking legal advice. To calculate the figure correctly you’ll need to know a few things about the estate, including:
- The value of the assets
- How the assets are owned
- The value of any debts and liabilities
- The value of any gifts made in the 7 years before their death
- The value of any charitable donations made
- The total value of assets in different parts of the estate, if relevant
Inheritance Tax Solicitors Near Me
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To be connected to a specialist Inheritance Tax solicitor near to where you live, please either call us now on 0845 1391399 or complete a Free Online Enquiry.
