5 Things You Need to Know About Inheritance Tax in the UK

Inheritance tax is a complex issue, and if you’re not careful, it can end up eating into your estate. Here are the top five things you need to know about inheritance tax in the UK to help you avoid any surprises. First, let’s understand what Inheritance Tax is.

What is Inheritance Tax?

An inheritance tax is a tax that is levied on the estate of a deceased person. The estate is comprised of all of the deceased person’s assets, including property, possessions, and money. Inheritance tax is payable by the executor of the estate, and it is generally payable when the value of the estate exceeds a certain amount. 

Inheritance tax rates vary depending on the value of the estate and who inherits it. For example, if the estate is valued at more than £325,000 and it goes to a spouse or civil partner, no inheritance tax is payable. However, if the estate is valued at more than £325,000 and it goes to someone who is not a spouse or civil partner, then inheritance tax will be payable at 40%.

There are some circumstances in which inheritance tax may not be payable. For example, if the deceased person left their entire estate to charity, then no inheritance tax would be due. Additionally, there are some reliefs available that can reduce or eliminate inheritance tax liability. For example, there is a relief available for agricultural property owners known as agricultural relief.

If your inherited estate has to pay inheritance tax, you must file a return with HM Revenue & Customs (HMRC) and pay the tax within 6 months of the date of death.

What are the Inheritance Tax thresholds?

Inheritance Tax is a tax that is levied on the estate of a person who has died. The thresholds for Inheritance Tax are as follows:

• The nil-rate band: This is the threshold at which no Inheritance Tax is payable. The nil-rate band is £325,000.
• The residence nil-rate band: This is an additional threshold that applies if you are leaving your home to your children or grandchildren. The residence nil-rate band is £175,000.
• The tapered rate band: This applies if your estate is worth more than £2 million. The amount of Inheritance Tax payable will be calculated on a sliding scale, with a maximum rate of 40%.

Here are 5 things to know about inheritance tax in the UK

1. 4% deaths in the UK result in inheritance tax liability

In the UK, inheritance tax is a tax that is levied on the estate of a deceased person. The tax is payable on the value of the estate above a certain threshold, and is calculated at a rate of 40%.

Although inheritance tax is a significant source of government revenue, it is not paid by everyone. In 2021/22, only around 4% of all deaths in the UK resulted in an inheritance tax liability. 

There are many different rules and exemptions when it comes to inheritance tax, so it’s important to seek a professional inheritance tax adviser in London if you think you may be liable to pay it.

2. You may not need to pay inheritance tax if you’re not British

If you’re not British, you may not need to pay inheritance tax. This is because the UK has a number of double taxation agreements in place with other countries. These agreements mean that if you’re not British, you may only need to pay inheritance tax on your UK assets.

However, if you’re a British citizen, you’ll need to pay inheritance tax on assets even in other countries. 

There are ways to circumvent this tax liability. Seek inheritance tax advice in London.

3. You can lower the rate of inheritance tax if you give to charity

In inheritance tax, you can lower the rate of tax you pay by giving to charity. The government encourages this by offering a reduced rate of inheritance tax for charitable gifts.

If you give 10% or more of your estate to charity, the inheritance tax rate on the rest of your estate is reduced from 40% to 36%. This could save you a significant amount in taxes.

Gifts to charity are also exempt from inheritance tax. This means that you can leave unlimited amounts of money or property to charity without paying any inheritance tax on it.

4. You can avoid inheritance tax with expert estate planning

If you’re like most people, you probably don’t want to think about taxes when you’re planning your estate. But inheritance tax can be a big issue, especially in the UK. Let an experienced inheritance tax planning expert do the brainstorming for you. 

There are many ways to avoid inheritance tax like – 

• Gifts
• Trusts
• Wills
• Charity
• Insurance

5. Inheritance Tax is imposed to redistribute wealth

In the UK, inheritance tax is imposed on the estate of a deceased person. The tax is payable by the executor of the estate and is calculated on the value of the estate after deducting any debts and liabilities.

An inheritance tax is a progressive tax, which means that the rate of tax increases as the value of the estate increases. The rates range from 18% to 40%.

The main purpose of inheritance tax is to redistribute wealth. It is generally considered to be a fair way of ensuring that everyone pays their fair share of tax. It is also a way to make people productive units of society, instead of surviving on inheritance. 

However, some people argue that it is unfair because it can result in double taxation, with both the estate and the beneficiaries being taxed on the same assets.

Conclusion

If you are dealing with the death of a loved one who resided in the UK, it is important to be aware of the inheritance tax that may be owed on their estate. In this article, we have outlined the top 5 things you need to know about inheritance tax in the UK. We hope that this information will prove helpful as you navigate through this difficult time.