Inheritance tax is a complicated issue – with each country having specific requirements and exceptions. There are some moves on the horizon, however, that could make things less complicated than they have ever been before as far as inheritance tax is concerned. If you’re wondering what’s going on with inheritance tax, this article will give you a quick breakdown!
What is inheritance tax?
Inheritance tax is a tax payable by the inheritors of an estate, which is the property, money, and other assets that a person dies leaving behind. The amount of inheritance tax payable will depend on the value of the estate and can be as high as 55% in some cases.
There are several ways to reduce the amount of inheritance tax that will need to be paid, including making sure that all of the estate’s assets are covered by a will, appointing a personal representative or inheritance tax specialist to manage the estate, and transferring assets into a nominated trust in advance of death. If you are planning to leave an estate to your children, it is important to speak to an accountant about your options so that you can make the most effective use of your inheritance taxes.
Types of Inheritance Tax
When you inherit something, it’s important to be aware of the different types of inheritance tax that may apply. Here’s a rundown of each type and what you need to know about it:
Type I Inheritance Tax is charged when an individual inherits money or property. The rate at which this tax is levied varies, but it’s usually around 25%.
Type II Inheritance Tax is charged when an individual inherits shares in a company or other type of estate. The tax rate here can also vary, but it’s usually around 40%.
Type III Inheritance Tax is charged when an individual inherits an estate worth more than £325,000 (or $500,000 in the US). The tax rate here is 40% plus 5%.
Who does it affect?
If you are a UK taxpayer and your estate is valued at more than £325,000 you will have to pay inheritance tax (IHT). IHT is payable by the person who is declared as the heir to the estate on death. This means that if you are the sole heir to an estate, you will have to pay IHT. If there are other heirs, their share of the IHT payable may be reduced by any reliefs they receive as a result of being junior beneficiaries. Reliefs available include local authority tax relief, Dividend taxation relief, and charitable donation relief.
If you are the executor or administrator of an estate, you will also have to pay IHT on the total value of the estate. The executor or administrator must obtain an assessment from HM Revenue & Customs ( HMRC ) to determine the amount of IHT payable.
Who pays?
If you are a UK taxpayer and your estate is valued at more than £325,000, the person who is declared as the heir to the estate on death will have to pay IHT. However, if there are other heirs, their share of the IHT payable may be reduced by
What are the rules for inheritance tax in the UK?
If you are the beneficiary of an estate valued at over £325,000 (or €450,000 as of 1 January 2019), you will be subject to UK inheritance tax. This means that if you are the sole beneficiary of an estate valued at £325,000 or less, there is no inheritance tax to pay. If there are other beneficiaries in addition to you, then the amount of inheritance tax that you will have to pay depends on your circumstances.
If your estate is worth less than £325,000, the basic rate of inheritance tax (20%) will apply. If your estate is worth between £325,000 and £650,000, the rate of inheritance tax will be 40%. If your estate is worth more than £650,000, then the rate of inheritance tax will be 45% (or 50% for estates worth over £1 million).
There are a few exceptions to these rules. If you are the direct descendant of a British national who died before 6 April 1925 (known as a ‘protected person’), then the basic rate of inheritance tax will not apply to your estate. Similarly, if your parents were both born before 6 April 1925 and you
How to reduce your inheritance tax bill
Inheritance tax is a tax that is paid by individuals who inherit money or assets. In the UK, inheritance tax is levied at 40% on the value of assets over £325,000. However, there are several ways in which you can reduce your inheritance tax bill.
One way to reduce your inheritance tax bill is to make sure that you use all of the Inheritance Tax Planning Tools available to you. These tools include:
- The Gift Aid Scheme – This scheme allows you to reduce the amount of inheritance tax that you pay by claiming Gift Aid from HM Revenue and Customs (HMRC). You must have been resident in the UK for at least 7 years before you die, and the donor must be your spouse, civil partner, cohabiting partner, or a parent or guardian of your children. If the value of the gift is over £7,500, then you may also be able to claim a 100% Gift Aid allowance.
- The Annual Exemption – If the value of your estate is below £325,000 when you die, then part of the value of your estate will be exempt from inheritance tax. The amount of exemption that you are entitled to depend on your age and
Conclusion
Inheritance tax is a relatively new concept in the United Kingdom, but it could have a significant impact on your estate if you don’t plan for it. If you are an estate planner, then this article is certainly worth reading as it contains all the information you need to know about inheritance tax in the UK. However, even if you’re not an estate planner, there are still steps that you can take to ensure that your loved ones will be able to enjoy your wealth after you’re gone. So read on for some tips on how to tackle inheritance tax in the UK!
