What is Inheritance Tax?

Inheritance Tax (IHT) is basically a tax on death. It is often described as being “a voluntary tax”, meaning that it can be avoided with proper assistance and planning.

Many people are very surprised by the amount of IHT that is payable upon the death of a relative or friend. Looking at the taxation rate which is 40% payable on all assets over £325,000 (from 6th April 2009), and, taking account of increasing property values (well normally!) it is easy to see how the the exposure to IHT can mount up!

One recent change in the law has served to provide some potential relief to couples. Since 9 October 2007 it has been possible to add the unused part of inheritance tax ‘nil rate band’ of the first partner to the allowances of the for surviving partner. This only applies to married couples and civil partners.

So what can and should you do? While the simple answer is to give all your assets away before you die this may not always be the most prudent and tax efficient way. Here are a few tips for you to consider, but take professional guidance before taking any action.

There are a number of exemptions to IHT:

the Nil Rate Band – IHT is payable on the total value of assets over £325,000 (from April 2009). Below this figure it is a “Nil Rate Band”. £325,000 may seem like a great deal of money, but maybe not so large a figure when you take into account it is the monetary value of absolutely everything that you own, including your house.

transfers between spouses – No IHT is payable on any transfer of assets on death from one spouse to another (if both have the same domicile). This might seem generous it often serves merely delay the IHT liability until the other spouse dies. Bear in mind that surviving spouses and civil partners can to utilise the unused inheritance tax nil rate band allowances of their dead partner.

annual gift of £3,000 – You can give away up to £3,000 worth of gifts every year to whoever you like.

gifts out of income – regular gifts out of surplus income, as opposed to capital, are exempt from IHT. This is useful exemption that only applies if the gifts are regular.

gifts of up to £250 – You can give £250 per person, but it not to the same person you gave the £3,000 annual gift to.

gifts on marriage – You can give £5,000 to your own child on marriage, £2,500 to your grandchild and £1,000 to anyone else. This applies to one marriage per person only.

gifts to charities – All gifts to registered charities are exempt from IHT

In addition gifts in excess of the exemptions are called Potentially Exempt Transfers (PETs). If you survive the seven years after the gift was made here is no liability to IHT. If you die within this period of time then IHT will become payable, but it may be at a reduced rate.

If you would like advice or to arrange a visit call us on FREEPHONE 0800 878 6565 or 07942 959599 or use our contact page and we will call you back.

Affordable peace of mind for people from all walks of life and for those not wanting the cost of a high street solicitor.

The home visit Will service is available in Berkshire, Dorset, Gloucestershire, Hampshire, Oxfordshire, Somerset and Wiltshire.