Inheritance Tax

Inheritance tax is an issue that worries many people, but in fact less than 10% of estates need to pay anything as most people fall below the threshold where the tax comes into effect.

While anyone wanting tax advice should always contact a specialist advisor, there are some general principles that apply to inheritance tax.

At the time of writing (Feb 2019), the threshold for paying inheritance tax only applies on estates worth more than £235,000, although if you leave your home to your children or grandchildren, then the threshold (at Feb 2019) is lifted to £450,000.

Example: Your estate is worth £500,000 and your tax-free threshold is £325,000. The Inheritance Tax charged will be on the £175,000 remaining.

Anything above the threshold is taxed at a flat rate of 40%, except for two situations.

One is that there is no tax whatsoever to pay if you leave everything above your threshold to your spouse, civil partner, a charity or a community amateur sports club. Some properties can also be taxed at a lower rate.

Also, if you leave a gift in your Will to a charity, then the rate paid on the remainder of the estate is reduced to 36%.

Example: If your net estate (after allowances are taken into account) was worth £250,000, after inheritance tax (IHT), your family would inherit £150,000. But, if you decide to leave 10% of your net estate to charity — £25,000 — your tax rate is reduced, so your family still inherits £144,000. Thanks to the tax change, your donation of £25,000 to charity costs you just £6,000.

Remember that inheritance tax may be due on any gifts caught by the Seven-year rule, which can treat gifts made in the last seven years as being taxable to deter people giving their assets away to avoid tax.

Anyone wanting tax advice should always contact a specialist advisor.

For a free Will writing service, visit our partners at Bequeathed.

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