Posted: Wednesday, 27 October 2021 @ 10:25
Tax can be a substantial bill, often amounting to tens of thousands of pounds
or more, payable by someone’s estate after their death.
is a complex area, but it is often possible to legitimately reduce the amount
of Inheritance Tax that will be due.
much Inheritance Tax is payable after a death?
Tax is payable when a net estate is worth more than £325,000. The value of the
net estate is calculated by deducting the amount of any debts and liabilities
from the total value of the deceased’s assets.
standard Inheritance Tax rate is 40%. If you leave 10% of the net value of your
estate to charity, then the rate drops to 36%.
Inheritance Tax is payable if the net estate is worth less than £325,000 or if
everything over £325,000 is left to a spouse, civil partner, charity or
community amateur sports club.
your home to your direct descendants
Inheritance Tax allowance is available if you leave your home to your direct
descendants (children, grandchildren etc.).
This is in the sum of an extra £175,000, referred to as the residence
nil rate band. It is available where an estate is worth less than £2 million.
Where an estate is worth more than £2 million, the allowance decreases by £1
for every £2 over £2 million that the estate is worth.
on your Inheritance Tax allowances to your spouse
If you are married or in a civil partnership,
you can pass all of your estate to your spouse or civil partner free of
Inheritance Tax. In addition, their estate can also utilise your unused
allowances, i.e. the
first £325,000 plus the residence nil rate band of £175,000, if applicable.
means that the second of a couple to die could potentially have an Inheritance
Tax allowance totalling £1 million, made up of two lots of £325,000 and two
lots of £175,000.
ways to reduce the amount of Inheritance Tax payable
can give a specified amount away in gifts during your lifetime. Each year, you
can give up to £3,000 free of Inheritance Tax. If you give more than this in
the last seven years of your life, then Inheritance Tax will be payable on it
on a sliding scale, with more tax payable the more recently the gift was made.
well as the £3,000, you can give individual gifts to people you know of up to
£250 and these will not attract Inheritance Tax. You cannot give £250 to
someone who has already received £3,000 from you however, or the extra £250
would be included in Inheritance Tax calculations if it was made in the last
seven years of your life.
can also give gifts to relatives who are getting married, free of Inheritance
Tax. This is limited to £5,000 to children, £2,500 to grandchildren and £1,000
can give gifts to charities and political parties free of Inheritance Tax.
rules surrounding Inheritance Tax can be complicated and it is always advisable
to seek independent advice to ensure that your estate is structured in the most
tax-efficient way possible.