What is Inheritance Tax?
Inheritance Tax is when the estate of someone who has passed away is taxed. An estate could be property, possessions or cash, for example. You only pay inheritance tax if:
- The worth of your estate is greater than £325,000
- You do not leave everything you own to a partner, charity or an ammeter sports club in a community.
If you are married and your estate is valued at less than the threshold of £325,000, then any part of the threshold which is unused can be added to your partner’s threshold after you pass away. Therefor your partner’s threshold can become £650,000 at maximum.
Rate of Inheritance Tax
The value of inheritance tax is 40%. The rate is only taxed on the part of your estate that is above the £325,000 threshold.
For example, if your estate is valued at £700,000 then you would be taxed 40% of £375,000 (700,000 subtract 325,000).
Inheritance Tax can be reduced to 36% in cases where you agree to leave some assets you own to charity. This will be 10% of the net value of the assets that will be left to charity.
Tax on Gifts Given
Certain gifts that you give when you are alive can be taxed, this depends on the circumstances that the gift was given in. The tax could be below 40% for gifts due to the ‘taper relief’
If you own a business you can be exempt from some of the inheritance tax. Business relief allows for some assets to be given to someone else without them being taxed. If they are taxed they may get a lesser bill, therefor reducing the payment.
You may give gifts of up to £3000, in a given tax year, without having to worry about inheritance tax. You can give more gifts throughout the year, but if you die within 7 years of giving the gift then you will pay inheritance tax in the gift. This is because HMRC treat the gift as a departing gesture and count it as passing on parts of your estate. The receiver of the gift will then have to pay tax on the gift after your passing.
There are also implications with inheritance tax if you own a farm or woodland. You can contact the Inheritance Tax and Probate helpline about relief and find out what percentage of tax you are expert from. We are also qualified to help you understand the implications of owning farmland or woodland on inheritance tax.
For any advice regarding inheritance tax call Windows Financial Services 0131 496 051. We also give advice on how to reduce your inheritance tax and can help you find a Inheritance Tax Plan (IHTP), a plan that helps to reduce the tax.
Inheritance Tax (IHT) Explained
Who pay’s the tax?
The assets from your estate that are passed on are used to pay the tax to HMRC. This is organised be the executor if there is a will. Those who inherit the assets (beneficiaries) normally do not get taxed on the assets. However, there are exceptions and they may have to pay tax on some of the things related to the assets they inherit. For example, if they make money from a home they inherited through rent then they will have to pay tax on it.
If you pass on a home or house to your partner then there will be no inheritance tax. Leaving your house to someone else, not your partner, will added the value of the house to the value of the estate.
Passing away within 7 years of giving away part or all of your property will be seen as leaving a gift. This will be included in the inheritance tax as part of the 7 year rule.
Windows Financial Services
Inheritance Tax (IHT) can be fairly complicated, we are here. Call 0131 496 051 for some of the most experienced expertise in the industry. If you are unable to call right now then email firstname.lastname@example.org or visit contact us where you can leave a message and we will reply within 24 hours.