Inheritance Tax

If a member of your family died, then their possessions, property and money would be tax with the Inheritance Tax.

There is no Inheritance Tax pay if either:

  • you leave everything to your spouse of civil partner or even a charity
  • the value of your estate is below the threshold of £325,000
  • you’re in a civil partnership or either married and your estate is lower than the threshold of £325,000, the threshold that is left over than you haven’t used can be added onto your partner’s threshold when you die. Their threshold can be up to £650,000

40% is the standard Inheritance tax rate. If your threshold is over £325,000 then this applies to you and the tax will be charge on the part that is over the threshold.

On some of your assets, the Inheritance Tax Rate can be reduced to 36% which will leave you 10% or more on the net value to charity in your will.

If you have a will, an executor will be dealing with your funds from your estate to pay tax to HM Revenue and Customs. Your beneficiaries don’t normally pay tax on things that they inherit. They may have some taxes to pay off if the property still has rental income.

When passing on a home when you die, there will be no Inheritance tax for this. If you leave a home to someone in your will, it goes towards the value of the estate. From the 6th of April, you will be getting a bigger Inheritance Tax threshold if you give your home away to your children, this includes foster children, adopted children, your grandchildren and even your stepchildren.

When you give a home away before you die there is no Inheritance Tax to pay if you move out and live for another 7 years. But if you want to continue living in your property after giving it away you will need it:

  • Pay your share of bills
  • Live there for at least 7 years
  • Pay rent to the new owner

You won’t have to pay rent to the new owners if:

  • You die within 7 years
  • You only give away a part of your house
  • The new owners also live at the property

There is no Inheritance Tax if you give out gifts such as Christmas presents and birthday presents that you bought out of your own income. These are known as exempt gifts. There is also no Inheritance Tax on girts that you bought for your civil partner or spouse. You can buy your partners as many gifts as you want as it won’t affect the Inheritance tax as long as they live in the UK permanently. You will only be charged Inheritance Tax when you give away more than £325,000 in the 7 years before your death. You can give away £3000 worth of gift and this will be exempt from the Inheritance Tax if it’s not added onto your estate, this is known as annual exemption. If you have any unused annual exemption you can carry this on to the next year but only for a year.

Within each tax yeah you can give away:

  • Payments to help with another person’s living cost, such as a child under 18 or an elderly relative
  • Normal gifts out of our income, such as birthday and Christmas presents, you must maintain your standard living after making the gift payments
  • Gifts to political parties and charities
  • Wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or £5,000 for a great-grandchild

Gifts made from 3 to 7 years before your death are taxed on a scale called Taper Relief

  • 3 to 4 years, 32% tax
  • 4 to 5 years, 24% tax
  • 5 to 6 years, 16% tax
  • 6 to 7 years, 8% tax
  • 7 or more 0% tax

If someone living outside the UK dies Inheritance Tax is only paid on your UK assets. It is not paid on excluded assets:

  • Overseas pension
  • Holding in authorized unit trusts and open-ended investment companies
  • Foreign currency accounts with bank or post office
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