The facts about Inheritance Tax | LabourBlawg

The facts about Inheritance Tax

by Forbes Solicitors on April 14, 2015

Inheritance Tax seems to be in the news a lot lately and it appears that everyone has an opinion on it. With May’s General Election fast approaching journalists and the public alike are on the lookout for details of what each of the various parties will pledge with regards this controversial tax, but what are the facts?

As things stand, the current rules around Inheritance Tax are:

  • Inheritance Tax is paid if a person’s estate exceeds £325,000 when they die. Anything below this threshold is not taxed.
  • Anything above the threshold is taxed at a rate of 40%, although this might be reduced to 36% if 10% or more of the estate is left to charitable causes.
  • The executor of the will or the estate’s administrator is the person responsible for paying Inheritance Tax usually by using funds from the estate – to be paid within six months of the deceased’s passing. Interest is payable on any amount due after this period, and there are different deadlines for Inheritance Tax payable on a trust.
  • If the deceased leaves everything to a spouse or civil partner whose permanent home is in the UK, then the estate is exempt from Inheritance Tax.
  • If the estate is worth less than £325,000, the deceased’s remaining Inheritance Tax threshold can be transferred to their spouse or civil partners estate when they die regardless of whether they remarry or not. This means the surviving partner can have an Inheritance Tax threshold of up to £650,000.
  • There are different rules if the deceased lived abroad.

What about gifts given by the deceased when they were alive?

  • A gift can be considered as anything of value (money, possessions, property etc.) or a loss in value when an item is transferred. This latter point means that if, say, a parent sells their house to their child for less that its market value, the difference counts as a gift.
  • There is a seven-year rule surrounding gifts which states that the donor must live for seven years after giving the gift. If not, it may be subject to Inheritance Tax. This includes homes given away as a gift, or selling a home and giving away the money.
  • The amount is reduced, however, on a sliding scale if the gift was given between three and seven years before the person’s death.
  • HM Revenue and Customs (HMRC) will notify the receiver of the gift if they are required to pay Inheritance Tax.
  • Married couple or civil partners who give gifts to each other are exempt from Inheritance Tax as long as the UK is their permanent home, and gifts to charities, museums, universities and community amateur sports clubs are also exempt.
  • There are several other exemptions and thresholds regarding gifts so it’s advisable to get the advice of a solicitor when making your Will.

What happens to the deceased’s home?

  • Where a home was solely owned by the deceased, the value of the entire property is included in the estate for Inheritance Tax purposes.
  • If the home was owned jointly by more than one person, only the deceased’s share is included.
  • A widow, widower or bereaved civil partner automatically inherits the deceased share of the house if they owned the home as ‘joint tenants’ and they pay no Inheritance Tax.
  • If they owned the home as ‘tenants in common’ each can pass on their share to whoever they like in their Will.
  • If a second home (not the deceased’s main home) is given away, there may be Capital Gains Tax payable.

Inheritance Tax is a complicated issue – especially as the outcome of the General Election may cause the rules and thresholds to change again. For this reason it’s advisable to seek the assistance of a solicitor when making your Will to ensure your estate is distributed exactly as you wish.

Forbes Solicitors have an expert team of Inheritance Tax Solicitors who have vast experience in helping people minimise their Inheritance Tax liability. To ensure your affairs are settled in the most tax efficient way they can be, contact them today on 0800 975 2463.

http://www.forbessolicitors.co.uk/

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