The estate (the property, money, and possessions) of someone who has died is subject to inheritance tax. We looked at fair ways of avoiding inheritance tax because it can cost someone a lot of money.
Who Pays The Tax?
HM Revenue and Customs receives funds from your estate to pay Inheritance Tax (HMRC). The person in charge of the estate (called the ‘executor’ if there is a will) does this.
Normally, your beneficiaries (those who receive your inheritance) do not pay taxes on what they inherit. They may be subject to relevant taxes, such as if they get rental income from a home given to them in a bequest.
If you give away more over £325,000 and die within 7 years, your beneficiaries may be subject to Inheritance Tax.
Situations Of Avoiding Inheritance Tax
In most cases, there is no Inheritance Tax to pay if either:
If your estate is worth less than £325,000, you can leave everything above it to your spouse, civil partner, a charity, or a community amateur sports club.
Even if the estate’s worth is below the threshold, you may still be required to disclose it.
Your threshold can rise to £500,000 if you give your home to your children (including adopted, foster, or stepchildren) or grandkids.
If your estate is worth less than your threshold and you’re married or in a civil partnership, any unused threshold can be added to your partner’s threshold when you die. This means that their limit might be as high as £1 million.
Avoiding Inheritance Tax – Tax Rates
The usual rate of inheritance tax is 40%. It only applies to the portion of your estate that exceeds the threshold.
Consider the following scenario: your estate is worth £500,000 and your tax-free threshold is £325,000. Inheritance Tax will be calculated at 40% of £175,000 (£500,000 minus £325,000).
If you leave 10% or more of the ‘net worth’ to charity in your will, the estate can pay Inheritance Tax at a reduced rate of 36% on specific assets.
Other Exemptions
Some gifts you make while alive may be subject to taxation after your death. Depending on when you donated the gift, ‘taper relief’ may mean that the gift’s Inheritance Tax is less than 40%.
Other exemptions, such as Business Relief, allow some assets to be passed on tax-free or with a lower bill.
If your estate contains a farm or woods, call the Inheritance Tax and Probate Helpline for information on Agricultural Relief.
Also:
Another circumstance in which you may be free from inheritance tax in the UK is when you make presents to your dependents. Gifts of eligible written material or artistic productions are always exempt from IHT in the United Kingdom. If you’re not sure what this indicates, you should seek expert advice. You may ensure that when you present gifts or pass them on to your children or family members, you take all required steps and never try to hide anything. You may also discover that the value of any gift you make is less than the value of any other asset, which should always be factored into your tax return calculation.
