This article will cover what Inheritance Tax is, how it can affect you and what you can do about it.
What is Inheritance Tax?
Inheritance Tax is a charge paid to the government – HMRC – on the value of your estate when you die. There are some circumstances where some tax may also be due on gifts made during your lifetime. There is an amount that you are allowed to leave before the tax is assessed, this is known as the ‘Nil Rate Band’ and for the tax year 2016-2017 this is £325,000
Who is responsible for paying it?
Inheritance Tax is usually paid to HMRC by the executor or personal representative and it is taken from funds from the deceased’s estate. It is important to note that the tax must be paid within six months of your death and before the grant of probate can be issued (in effect permission to distribute your legacies), sometimes the executor has to borrow the money or pay it from their own funds.
Is There Any Way To Reduce This?
If you are married or in a registered civil partnership then you can leave any amount of money and/or assets to your partner with no tax being due at all. When they subsequently pass away your “unused” allowance can be transferred to them, in effect doubling up to £650,000.
Is It Just On The Value Of My Property?
Unfortunately not, it is due on the total value of the estate that you leave – property, savings, shares, ISA’s (only exempt from Income Tax), Pensions, Insurance lump sum payouts etc.
What Can I Do About It?
There are methods by which the potential tax bill can be reduced by arranging to have certain assets disregarded in the valuation process, this is a complex procedure and professional advice is essential. If you try and do this yourself it is very easy to get this wrong and make the situation worse rather than better.
If you are concerned about Inheritance Tax, and would like to know more about what you can do to reduce the amount you have to pay, simply complete the contact form below.