A Quick Guide to Inheritance Tax
What is Inheritance Tax?
Inheritance Tax is a tax that is payable when a person dies, and their estate (which includes their savings, property, and all possessions) is worth more than the current threshold for Inheritance Tax, which is currently £325,000. Should your estate be worth more than the threshold, then your estate is liable to pay Inheritance Tax on the estate that is above this amount.
Who is responsible for paying Inheritance Tax?
The general rule is that the Executor of a Will, or an Administrator of the estate is the person who ensures that funds from the estate are used to pay the Inheritance Tax.
Will my estate have to pay Inheritance Tax?
Each person has an Inheritance Tax free amount of £325,000. Certain gifts made in the 7 years before death are also taken into account.
If a person’s estate has been left entirely to their spouse i.e. their husband, wife or civil partner, then the estate is usually exempt from Inheritance Tax, as long as their spouse resides in the UK. Upon the death of the remaining spouse, if their spouse did not use any of their Inheritance Tax allowance of £325,000, then their allowance transfers to the surviving spouse’s estate. This means that upon the surviving spouse’s death his/her estate may well have no Inheritance Tax to pay unless it exceeds £650,000. However, should the first spouse use some of his/her allowance upon their death, the unused proportion of their allowance can be transferred to their spouse for use upon the surviving spouse’s death.
Gifts to charity are exempt from Inheritance Tax. The rate of Inheritance Tax can further be reduced if 10% or more of a person’s taxable estate is left to charity. Should this be the case, then the Inheritance Tax rate reduces from 40% to 36% for any assets exceeding the Inheritance Tax threshold.
Future changes to Inheritance Tax
The Government have confirmed that from April 2017, there is to be a new family home allowance which will be available to property owners. This new allowance means that there is the potential for a person’s Inheritance Tax allowance to be increased up to an additional £175,000 per person from April 2020. Add this to the threshold of £325,000 which is currently in place, this provides homeowners the potential for an overall allowance of £500,000, or if you own a property as a couple, £1,000,000. However, there are restrictions to qualify for this allowance; the property is required to be inherited directly by direct descendants of the home owner. Direct descendants are defined as children, stepchildren, adopted and foster children, and grandchildren.
If you wish to discuss Wills, Inheritance Tax planning, or instruct us to assist you in the administration of an estate, we have an excellent Wills, Trusts and Probate Department to assist you, and please contact us to obtain more information.
This article is for general information only and does not constitute specific advice. You should not rely on the information in this article. Fiona Bruce Solicitors recommends that you seek our specific advice if you wish to rely on the any part of this article. Whilst Fiona Bruce Solicitors makes every effort to ensure that the article is accurate, Fiona Bruce Solicitors excludes all liability for claim, loss, demands or damages of any kind whatsoever (whether such claims, loss, demands or damages were foreseeable, known or otherwise) arising out of or in connection with the use of this article or any other information contained on this website. Any information provided only applies to England and Wales.