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