Inheritance Tax and You
Inheritance tax( IHT) receipts have surged by an astounding 22.9 % in the first quarter of the tax year, and according to HMRC the amount of IHT paid in the last year has reached an all-time high. But what does this mean for the average person? We cover the basics on IHT.
What is IHT?
IHT is a transfer tax. It is charged primarily on transfers on death, which is what we will focus on, though there are some circumstances where IHT is charged on transfers in lifetime.
On death IHT is charged at a rate of 40 % on all money, property and possessions, through some assets can be exempt. It will only be charged on the value of your assets over your nil rate band( NRB). Each individual has a NRB of £ 325,000( 2017 / 18). If you have previously married or been in a civil partnership and your spouse or civil partner has died then your estate may be able to benefit from their NRB too, provided they didn’ t use it. So spouses and civil partners may benefit from a NRB of £ 650,000.
For example: Melissa dies leaving her £ 350,000 estate to Jerry. Jerry now finds himself with an estate worth £ 750,000. When Jerry dies his estate will have his own NRB and also Melissa’ s NRB. £ 650,000 worth of assets can pass free of IHT, so IHT will only be charged on the remaining £ 100,000.
Are there any exemptions?
If you leave all of your estate to a spouse or civil partner then no IHT will be paid. This is due to the‘ spouse exemption’ provided for by section 18 of the Inheritance Tax Act 1984.
Similar exemptions apply to gifts to charity. Any gifts made to charity in your Will( and also in lifetime) are free of IHT.
There are also further exemptions if you own a business or agricultural property. Certain business and agricultural property qualifies for‘ Business Property Relief’ or‘ Agricultural Property
Relief’. This is a complex area so if you have interests in a business, farm, or woodland we would recommend you seek professional advice.
When is IHT paid?
IHT must be paid by the end of the sixth month following your death. If it is not paid within this time then HMRC will begin to charge interest. In some circumstances it can be paid in instalments over a 10 year period, but only on certain assets such as property.
The IHT is paid by your executors – the people you appointed in your Will to administer your estate after your death. It is paid out of your estate, though is some cases the executor will pay the IHT out of their own pocket and reclaim this from your estate.
A beneficiary won’ t normally pay any IHT on assets they receive. They may have to pay IHT if the estate is unable to, or if you made a gift to them within the 7 years immediately before your death.
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The Society of Will Writers