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Inheritance tax will usually be paid on estates valued over certain thresholds. There is normally no money to pay on estates valued below £325,000. This threshold could be increased to £475,000 if the home within the estate is left to children or grandchildren. It is also possible to increase thresholds through marriages or civil partnerships. Any unused threshold can be added to a partner’s threshold when a person dies. Meaning that this threshold could be as high as £950,000.
Currently, any estates that are charged with inheritance tax will pay a standard rate of 40 percent.
This 40 percent is only charged on the part of the estate that is above the threshold.
So, for example, if an estate is valued at £500,000, inheritance tax will be charged at 40 percent of £175,000 (£500,000 minus £325,000).
It is possible to reduce this rate to 36 percent if 10 percent or more of the total net value of the estate is left to charities.
Inheritance tax bills can be affected by the use of gifts (Image: GETTY)
Inheritance tax can be a large burden for many families (Image: GETTY)
Inheritance tax is a generally unpopular tax and many will go to great lengths to reduce it.
The government detail that there are official reliefs and exemptions in place that can reduce the burden.
Certain gifts shared between partners will not form part of an estate and will therefore not count towards an inheritance tax ill.
These “exempted gifts” can include anything of value such as money, property and possessions.
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Inheritance tax is a generally unpopular tax and many will go to great lengths to reduce it.
The government detail that there are official reliefs and exemptions in place that can reduce the burden.
Certain gifts shared between partners will not form part of an estate and will therefore not count towards an inheritance tax ill.
These “exempted gifts” can include anything of value such as money, property and possessions.
Tax rates vary across the world (Image: EXPRESS)
It is possible to give away £3,000 worth of gifts eat tax year without them being added to the value of an estate. This is officially recognised as an “annual exception”.
Any unused annual exemption can be carried forward to the next year.
Aside from gifts between partners, the government detail that gifts in other circumstances can also affect inheritance tax bills.
Each tax year, it is possible to give away wedding gifts of up to £1,000 per person, normal gifts out of income such as birthday presents, supporting payments for other people’s living costs such as elderly relatives and gifts or donations to charities and political parties.
If following these types of gifts there is still inheritance tax to pay, it will be charged on a tapered scale.The full 40 percent will be charged on gifts given in the three years before the person died.
For periods longer than this, the amounts paid will reduce. If there are three to four years between giving the gift and death, the tax bill will be 32 percent, between four and five will have a bill of 24 percent, between five and six will have 16 percent and between six and seven will be eight percent.
If the difference seven years or higher, there will be no tax to pay at all. There are other reliefs in place that some people may be able to take advantage of.The government details that “business relief” is in place which could reduce the value of a business or the assets within it when working out how much inheritance tax is due.
Some assets within a business that can be passed on will receive relief of either 50 percent or 100 percent depending on circumstances. There is also “agricultural relief” in place that provides relief on certain agricultural property that is being passed on. Certain qualifying lands, buildings and securities can receive relief if it has been owned and occupied for agricultural purposes before it is transferred.
If inheritance I=tax is proving to be a large concern, it is possible to seek professional financial planning help. Financial and wealth planners can help organise an estate so that the inheritance tax burden is reduced but this will likely induce high fees.