What is inheritance tax?
Inheritance tax is paid on a person’s estate when they pass away. It may also be levied on trusts or gifts that were made while the person was still alive.
When are you liable to pay inheritance tax?
Currently, this kind of tax is only payable if the individual’s estate is worth over £325,000. This figure is known as a nil rate band.
However, in some circumstances, exemptions and reliefs are available. Any gifts left in a will to a legitimate charity will not be taxed.
How does inheritance tax work for couples?
The inheritance tax threshold increases to £650,000 for married couples and those who have entered a civil partnership.
Couples can pass an unlimited amount of assets and gifts to each other during their lifetime or when they die, as long as the person who is receiving the assets is a permanent UK resident.
If a spouse leaves everything their own to the second partner upon death, it will not be taxed as long as their executor or representative has transferred the spouse’s nil rate band to the survivor.
How are lifetime gifts treated for inheritance tax purposes?
Gifts to exempt beneficiaries are exempt from inheritance tax. An exempt beneficiary may be your spouse or civil partner, qualifying charities, some institutions (such as universities and museums), or a qualifying UK political party.
Every individual is allowed to give away gifts worth up to £3,000 in any given tax year. You may be able to administer gifts of a higher value if:
- You are giving a gift for a wedding or civil partnership ceremony
- You arrange regular gifts from your after-tax income. These could include annual gifts to a certain individual for their birthday, or regular premiums on a life insurance policy
- You are making maintenance payments to a partner or to a relative who is dependent on you
- You arrange a Potentially Exempt Transfer (PET). For a gift to qualify as a PET, you will need to live for seven years after giving the asset away
Gifts into trust are not normally exempt from inheritance tax.
How do you make the most of the exemptions that are available to you?
Inheritance tax is a voluntary tax in the sense that, with a little forward thinking, it can be reduced or even avoided altogether.
Our inheritance tax planning specialists can help you navigate the various exemptions that could save you and your survivors thousands of pounds in the longer term. It’s our job to make sure your affairs are structured in such a way that mean your beneficiaries are taxed as little as possible on your gifts and inheritance.
To speak to a member of our team, please call 01206 820638
Alternatively, please complete our online enquiry form.