Bite sized bits – Inheritance Tax (IHT)
IHT stands for Inheritance Tax and is a tax that is levied on the estate of deceased individuals in the UK. The tax is based on the value of the assets that are left behind by the deceased, including property, savings, investments and possessions.
The current threshold for Inheritance Tax is £325,000, which means that if the value of the estate is below this amount, then no tax is payable. However, if the value of the estate exceeds this threshold, then the excess is subject to a tax rate of 40%.
There are some exemptions and reliefs available that can reduce the amount of Inheritance Tax payable, including:
1. Spouse or Civil Partner Exemption: Assets left to a spouse or civil partner are exempt from Inheritance Tax.
2. Nil-rate Band: Each individual has a £325,000 tax-free allowance, which can be passed on to a spouse or civil partner on death.
3. Annual Exemption: Gifts of up to £3,000 can be made each year without incurring Inheritance Tax.
4. Business Property Relief: Certain types of business property can be exempt from Inheritance Tax.
5. Agricultural Property Relief: Agricultural property can be exempt from Inheritance Tax.
6. Residence Nil Rate Band: An additional nil rate band of up to £175,000 per person where there is a primary residence which is passed on death to a direct descendant (child, stepchild, grandchild). This nil rate band is tapered for estates above £2m and is removed altogether for estates above £2.35m.
In addition, there are a range of other reliefs and exemptions available, depending on the circumstances of the estate. These include Charity donations from the estate which can attract a 10% reduction in IHT.
It is important to note that Inheritance Tax is a complex area, and it is important to seek professional advice to ensure that your estate is structured in the most tax-efficient way possible.
For more information view our Estate Planning Guide here
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