Common questions about Inheritance Tax
Inheritance Tax (IHT) is the tax that may have to be paid on someone’s estate (the property, money and possessions) after they pass away. In this article, our wills and estate solicitors answer five common questions about Inheritance Tax so, you know what it is and how it works enabling you to plan for the future.
Depending on the value of your estate IHT may have to be paid after you pass away before the remainder of your estate is given to your loved ones. It’s important you plan your IHT to avoid having to pay much more than expected.
How much is inheritance tax?
You will only pay inheritance tax if the value of your estate is over £325,000 threshold then, inheritance tax is typically charged at 40%. This rate is only charged on the portion of your estate that is above the threshold. For example, if your estate is valued at £450,000, you would only pay tax on £125,000 (£450,000 minus £325,000). So, £50,000 tax would be payable.
Further tax reliefs are available if a spouse has died before you or if you leave your family home to your children or grandchildren.
How to reduce the amount of inheritance tax paid?
- Unlimited gifts up to the value of £250 per person can be made each year
- Regularly giving away up to £3,000 per tax year in gifts
- Putting your assets into a trust for your beneficiaries
- Leaving your estate to your spouse or civil partner
- Paying into a pension rather than into a savings account
- Leaving a donation to charity
Who pays the inheritance tax?
The person who pays the IHT on your estate will depend on whether you have a valid will in place or not. If you have a will, typically the executor of the will arranges to pay the tax. If there isn’t a will then the administrator of the estate will pay it. If IHT is payable on any gifts made in your lifetime the recipient of that gift could be liable for paying the IHT. The tax is paid from your estate to HM Revenue and Customs (HMRC).
When is inheritance tax paid?
The person responsible for paying the IHT must pay the bill by the end of the sixth month after the person’s death. In the event that the tax is not paid within this timeframe, then HMRC will start charging interest.
Can inheritance tax be avoided?
Inheritance tax cannot be avoided unless you are able to do it legally by reducing the amount of IHT to pay on your estate. For example, if you decide to gift money in your life so, that the value of your estate falls beneath the £325,000 threshold.
We recommend speaking to one of our Wills and Estate Solicitors for clear and honest legal advice on ways to reduce your IHT because it can be extremely complex.
If you would like to speak to our wills and estate solicitors please contact us on 033 3344 9609 or email [email protected].
