Inheritance Tax (IHT) is a tax that is paid on the value of your worldwide assets when you die. This is called your estate. A person's estate includes: everything owned in their name; the share of anything owned jointly; gifts from which they keep back some benefit, such as a home given to a son or daughter but still lived in by the parent; assets held in some trusts from which they receive an income, assets abroad.
Everything that the deceased person owed is set against this total value, such as, any outstanding mortgages or loans, unpaid bills, as well as funeral expenses.
The Inheritance Tax (IHT) Threshold (or Nil Rate Band)
You only have to pay inheritance tax if the total value of the assets exceeds the nil rate band. The current threshold or nil rate band is £325,000 for individuals and £650,000 for couples, but only if they leave everything to each other. If the value of your estate, including your home and certain gifts made in the previous seven years, exceeds this threshold, tax will be due on the balance at 40%. However, an estate passing to your spouse/civil partner or charities will pass completely free of inheritance tax.
Many people think that inheritance tax only concerns the very wealthy but property prices are such that the value of your property alone can easily exceed the tax threshold.
Reducing Inheritance Tax
There are a number of actions that can be taken to reduce inheritance tax. They include:
- writing a Will;
- making gifts;
- reviewing asset ownership;
- minimising your estate;
- considering marriage;
- using trusts; and
- reliefs (agricultural and business).
Phone us or come to one of our offices, and we’ll explain the use of the above for your circumstances in more detail.
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