Table of Content:
What is Inheritance Tax?
Inheritance Tax is a tax on the estate of someone who has recently passed away. Everyone has a tax-free threshold of £325,000, and there is a tax of 40% on anything over this. Married couples and civil partners are allowed to pass on their assets to their partners tax-free. Their surviving partners can also inherit any tax-free allowance that hasn’t been used.
The executor of the deceased’s estate will arrange for any Inheritance Tax to be paid and then distribute the estate in alignment with the deceased’s will.
How is Inheritance Tax Calculated?
- The total value of a person’s estate is calculated upon their death. This includes everything from cars and properties, to cash and investments
- In the tax year 2021/22, everyone gets a tax-free extra allowance of £175,000 to use against the value of your property. This means that your tax-free allowance will increase to £500,000 before Inheritance Tax is due
- Any gifts made in the 7 years preceding someone’s death could be subject to Inheritance Tax, depending on how much of the 7 years have elapsed at the time of death. This is known as the 7 Years Inheritance Tax Rule
- There is also an annual gift allowance of £3,000 that is exempt from Inheritance Tax
- Gifts for the marriage of a child (up to £5,000 max), grandchild/great-grandchild ( up to £2,5000 each), or any other relative (£1,000 max) are also exempt from Inheritance Tax.
- You can also give away up to £250 every tax year to anyone you know, without having to pay inheritance tax
- Gifts made to charities or political parties are also exempt from Inheritance Tax. Donations you make to charity may reduce your Inheritance Tax rate from 40% to 36%.
Inheritance Tax Calculator
This calculator can help you gain a rough idea of the breakdown of your estate, and indicate how much inheritance tax your heirs may need to pay.
However, this calculator does not account for any gifts or trusts made during your lifetime, which may lead to a larger IHT bill. It also doesn’t take into account any money you may be leaving to charity.
In order to accurately ascertain how much inheritance tax your heirs will be paying, it is important to seek independent inheritance tax planning advice. One of our advisers at Thornton and Baines will be able to help you with your personal situation; contact us via our website at: https://inheritance-tax.co.uk/contact-us/
- Main property
- Other properties
- Insurance policies not in trust
- Other assets (vehicles, house contents, jewellery)
- Outstanding mortgage on your main home
- Outstanding mortgage(s) on additional properties
- Loans, overdrafts, credit cards
- Bank/building society accounts
For more information on the various rules surrounding Inheritance Tax, take a look at our website: https://inheritance-tax.co.uk/iht-guide/