Inheritance Tax Explained
Listed Under: Blog
Inheritance tax explained
Inheritance Tax is a tax on an individual’s estate (their property, money and possessions) where it is valued at more than £325,000 when they die. This is known as the ‘Inheritance Tax threshold’. Typically Inheritance Tax is paid from funds of the estate by the executor of the will or the administrator of the estate, within 6 months of the individual’s death. Inheritance Tax is paid at 40% on any estate funds above the Inheritance Tax threshold.
When calculating an individual’s estate, gifts made within the last 7 years before death are included and count towards the Inheritance Tax threshold. For example if an individual gave £100,000 to their children two years before they died then this would be included within the estate when calculating inheritance tax. There are however exceptions to this rule, gifts that can be made within 7 years of death but excluded from the estate. These include:
The annual exemption of £3,000 per annum.Each individual can gift this amount every year without attracting Inheritance Tax.Leftover annual exemption can be carried forward, up to a maximum of £6,000.
Wedding gifts.There is no inheritance tax on wedding or civil partnership gifts given to a child of £5,000, a grandchild or great grandchild of £2,500, or anyone else of £1,000.
The de-minimis threshold of £250 each.Unlimited gifts of up to £250 per person can be provided in any one tax year, unless covered by another exemption.
The Government announced significant changes to the Inheritance Tax threshold in the 2015 budget, with the addition of a “family home allowance”. Currently married couples have an Inheritance Tax threshold of £650,000 (£325,000 per individual). From 6 April 2017 the family home allowance increases the Inheritance Tax threshold for married couples to £850,000 in 2017/18, £900,000 in 2018/19, £950,000 in 2019/20 and £1,000,000 in 2020/21.
The increases also apply to unmarried individuals.
For Inheritance Tax planning advice we’re here to help.
Contact us here