When preparing a Will one aspect to consider is inheritance tax. In simple terms, any amount over £325,000 can be taxed. However, there are various factors that can mitigate this and in this article, we are going to look at this.
When we say the value of the estate there are factors around this. For example, if you leave everything to your partner, a charity or a community club then this is not taxed.
Furthermore, if you pass on your home to your children or grandchildren (this includes adopted or foster children) then your inheritance tax threshold increases to £425,000.
Another aspect is if your partner dies and their inheritance is below the threshold this can be added on to yours so in theory the combined total could be as much as £850,000.
The standard amount of tax is 40%. Just to be clear this is on any amount above the threshold. What you may know is that this can be reduced to 36% if you agree to donate 10% or more of the net value of the estate to charity.
There are also various exemptions you may not be aware of. For example, if you own a property with woodland or farmland then you may be entitled to an Agricultural Relief Exemption.
Another potential avenue is Business Relief Exemption. This applies to some assets that are used for business purposes and these could potentially be passed on without paying tax on them (or if not, they could be passed on at a reduced rate).
You can also give gifts of up to £3000 throughout the tax year (the period between 6th April to 5th April) known as an “annual exemption”. This doesn’t have to be per person either – for example in a tax year you could give someone a birthday gift and a wedding present within the same timeframe.
The person who works out and pays for the inheritance tax is the executor of the Will. This is usually someone who can be trusted with this, it may be a family member but often it is a professional who can be considered neutral and qualified to handle the dividing of assets.
Generally speaking if you pass on something to someone they don’t have to pay inheritance tax but there may be some other related tax that they have to pay (for example any form of rental property).
If you live outside the UK inheritance tax is only applicable to assets based in the UK. If you have lived in the UK for 17 out of the last 20 years or you have lived permanently in the UK then you are considered “domiciled” (ie based in the UK).
There are helplines you can contact in order to find out more about what does or does not apply when it comes to inheritance tax. However, in order to know what you could be entitled to and possible exemptions it is worth discussing this with a legal professional.
To find out more contact our specialist team today and we will help you go through this to get the most value for you and your loved ones