Who has to pay Inheritance Tax?
Oct 20, 2016
Inheritance tax is sometimes known as the death tax and it is paid on an estate when someone dies and their assets fall above the Inheritance Tax Threshold. Inheritance tax is not always payable on all estates.
The current threshold for inheritance tax is £325,000. If you leave your entire estate to your spouse or civil partner, there will also be no inheritance tax to pay. The same applies if you leave everything to charity.
If your estate is worth more than £325,000, you’ll pay inheritance tax payable at 40% of anything falling over and above that threshold. However if you are married or in a civil partnership, you can transfer any of your unused allowance to your partner, so their allowance may be as high as £650,000 when they die.
Another option to consider is leaving a legacy to a charity in your Will. If you leave 10% or more to a charity your inheritance tax rate will be reduced to 36%. This may be worth considering when you make your Will.
There are some forms of inheritance tax relief too. Some businesses and property are exempt from inheritance tax or are taxed at a lower rate than the usual 40%.
Other ways to reduce your inheritance bill may be to make gifts to people during your lifetime. This seems like a very good way to avoid paying inheritance tax, but there is a snag. After you’ve given away a gift, you have to survive for at least 7 years after giving it, or else it will have to be included in the inheritance tax calculations. There are certain gifts that are exempt and we would suggest that you seek advice prior to any gifts being made.
The executor of the estate will deal with calculating and paying of any inheritance due. Some of the rules around inheritance tax can be quite complicated to navigate and if you fail to calculate the amount you should pay, you may be financially responsible.
New rules coming into force from 6 April 2017, mean that from next year, if you pass on a residence to a direct relative, they will receive an addition to their nil-rate inheritance tax band. This additional allowance will be:
o £100,000 in 2017/18
o £125,000 in 2018/19
o £150,000 in 2019/20
o £175,000 in 2020/21
As before, any unused allowance can be transferred to a spouse or civil partner.
Being aware of the rules can help you when you need to pay inheritance tax. Consulting a professional regarding tax planning could benefit your estate in the long run.
Call our Private Client team on 01264 353411, email: firstname.lastname@example.org or fill in our no obligation, online enquiry form and we will be happy to assist you with your specific circumstances.
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