Inheritance Tax Planning

What is Inheritance Tax?

Inheritance Tax (IHT) is the tax imposed upon the estate (all property, possessions, and money) of a deceased’s person. The standard Inheritance Tax rate is payable at 40% and is only payable on the part of your estate which is above the Tax-free threshold, which currently sits at £325,000 – this is known as the nil-rate band.

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When is there no Inheritance Tax to be paid?

Generally, there is no IHT to be paid if: the value of the estate is below the nil-rate band, if you were to leave anything above the nil-rate band to a spouse /civil-partner/an exempt beneficiary (for example a charity) or if you gift your home to your children or grandchildren, then your threshold may increase.

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When is there Inheritance Tax to be paid?

Inheritance Tax can be payable on any part of your estate which is valued above the nil-rate band of £325,000. This means that if your estate is worth £600,000, if you minus the £325,000, you are left with £275,000 taxable at 40%, meaning the tax you may be liable to pay is £110,000.

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What is included in an estate valuation?

To value a deceased’s estate to determine Inheritance Tax liability, you must list all assets and calculate their value at the date of death and deduct the debts and liabilities (keeping accurate records of how you determined this). Assets include any money, property, jewellery, cars, shares, insurance pay-outs as well as any jointly owned assets. You must also include a record of any gifts which have been given in the last 7 years of the deceased’s life.

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Who pays inheritance tax?

If there is a valid Will at the time of death, the Executors of the Will are generally the ones who arrange to pay the Inheritance Tax, if there is no Will then it is in the hands of the estates Administrator to do so.

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IHT can be paid by using the funds from the estate, from any money gained from the sale of assets or by using the Direct Payment Scheme. This is used when the deceased has passed leaving money in a bank or building society and the person who is winding up the estate can request that some or all the funds available in the account be used for the Inheritance Tax payment.

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When must Inheritance Tax be paid?

Inheritance Tax must be paid out no later than the last date of the 6th month of the deceased’s death. If the Inheritance Tax is not paid by this date, then HMRC will start charging interest on the Inheritance Tax.

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To have a discussion regarding Inheritance Tax surrounding your own personal circumstances, get in touch with us today and we can connect you with one of our trusted financial advisors.