This tax is complicated, to say the least. The wealthier you are, then the more you can save by using financial advisers and solicitors. I am not wealthy enough to use these services, but have enough 'assets' to make some appropriate plans to reduce the liability.
Inheritance Tax is a tax on the estate (the property, money and possessions) of someone who’s died.
There’s normally no Inheritance Tax to pay if either:
the the value of the estate is below the £325,000 threshold
you leave everything above the £325,000 threshold to your spouse or civil partner.
If the estate’s value is below the threshold you’ll still need to report it to the HMRC.
If you give away your home to your children or grandchildren your threshold can increase to £450.000
If you’re married and your estate is worth less than your threshold, any unused threshold can be added to your partner’s threshold when you die. This means their threshold can be as much as £900,000.
Inheritance Tax rates
The standard Inheritance Tax rate is 40%. It’s only charged on the part of your estate that’s above the threshold.
Example Your estate is worth £500,000 and your tax-free threshold is £325,000. The Inheritance Tax charged will be 40% of £175,000 (£500,000 minus £325,000).
Reliefs and exemptions
Some gifts you give while you’re alive may be taxed after your death. Depending on when you gave the gift, ‘taper relief’ might mean the Inheritance Tax charged on the gift is less than 40%.
Other reliefs, such as Business Relief, allow some assets to be passed on free of Inheritance Tax or with a reduced bill. - I'll do another blog page on gifts and Business Relief.
Who pays the tax to HMRC
Funds from your estate are used to pay Inheritance Tax to HM Revenue and Customs (HMRC). This is done by the person dealing with the estate (called the ‘executor’, if there’s a will).
Your beneficiaries (the people who inherit your estate) do not normally pay tax on things they inherit. They may have related taxes to pay, for example if they get rental income from a house left to them in a will.
People you give gifts to might have to pay Inheritance Tax, but only if you give away more than £325,000 and die within 7 years.