A frequently asked question when someone dies is whether Inheritance Tax has to be paid ? the answer as the article discusses depends on a number of factors.
The Inheritance Tax threshold
The basic rate of inheritance tax is 40% above £325,000, this is known as the Nil Rate Band. In April 2018, the government estimated that 4.8 billion was raised in taxes so it is significant tax.
Certain gifts are exempt from tax which include :-
- gifts to surviving spouses
- gifts to charities
- gifts to political parties and those made for the national interest
When someone dies the taxable value of the persons estate is that at the date of death, however transfers made out of an estate within 7 years are included, however certain reliefs are available for the following gifts :-
- gifts made in one tax year not exceeding £3,000
- gifts made by the deceased in contemplation of marriage – parents cab £5,000 and grandparents £2,500.
Once the net value of the estate is calculated the next question is whether any reliefs are available.
The Spouse Exemption
All assets that pass between spouses are automatically exempt from Inheritance Tax.
Transfer of unused nil rate band band
In 2007 the government introduced a new relief that enabled widows, widowers and civil partners to use the share, if any, of their partners tax free allowance which was unused when they died, to set off against any tax on their own estate.
The amount transferable ( on the death of the second spouse ) is based on the proportion of the nil-rate band that was unused when the first spouse or civil partner died. Thus, if everything passes to the surviving spouse, on the death of the second spouse, the estate would be able to rely upon £650,000 tax free allowance.
Main residence relief
The government also announced that from April 2017, an additional nil rate band would apply on transfers on death of a main residence to a child of the deceased and their descendants. The rates of relief are as follows :-
- £100,000 in 2017 to 2018
- £125,000 in 2018 to 2019
- £150,000 in 2019 to 2020
- £175,000 in 2020 to 2021
Typical Issues with Inheritance Tax
Understanding inheritance can be very confusing and typically the main questions we get asked relate to :-
- how much inheritance do i have to pay ?
- what is the time limit for applying for probate and paying tax
- what reliefs are available ?
- do i have to pay upfront or instalments ?
- do i have to complete an inheritance tax return in every case even if no tax is payable ?
- the treatment of gifts made 7 years prior to death
Contact us for Inheritance Tax advice and help
If you would like help with probate or advice on inheritance tax we have a dedicated team that can help. Please contact Tim Murden on 01482 429985 or via e-mail at firstname.lastname@example.org