Inheritance Tax is a type of tax that’s paid by a person who inherits money, assets, or property from someone who has passed away. It’s commonly referred to as ‘IHT.’
If you’re unsure whether you’ll pay IHT or not then don’t worry! There’s usually nothing to pay if either:
However, it’s worth remembering that if the estate’s value is below the threshold you’ll still need to report it to HMRC. If you’re giving away your home to your children or grandchildren, your threshold can increase to £500,000.
The Inheritance Tax rate is 40% as standard. You’ll only be charged on the part of your estate that’s above the threshold. For example, if your estate is worth £500,000 Inheritance tax will be 40% of £175,000 (£500,000 minus the £325,000 threshold).
However, you can pay IHT at a reduced rate of 36% on some assets if you leave 10% or more of the ‘net value’ to charity in your will.
Inheritance Tax may have to be paid after the death of the giver on some gifts they’ve given to you, especially if you received them less than 7 years before the person died. This depends on:
In some instances, you might be able to claim relief or be exempt from Inheritance Tax. Some gifts that were given to you when the person was still alive may be taxed after their death. Depending on when they gave you the gift, ‘taper relief’ might mean that the IHT charged is less than 40%. Other forms of relief include Business Relief, which allows some assets to be passed on free of Inheritance Tax or with a reduced bill.
We recommend using the HMRC IHT calculator, or for a full evaluation of your estate you can also contact our team. We can offer a consultation to discuss your qualifying assets and how this will affect the tax payable by your beneficiaries.
The threshold of tax-free inheritance for spouses is £1 million. They will only pay Inheritance Tax if you leave them an estate of more than £1 million.