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.
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.
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.
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:
Gifts into trust are not normally exempt from inheritance tax.
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.