Inheritance Tax explained
A topic that many avoid discussing as it means thinking of a loved one passing away, yet having some understanding about Inheritance Tax, the thresholds and tax rates, can help ease the stress at such a difficult time.
What is Inheritance Tax?
Inheritance tax is the tax on a property, money or possessions – usually referred to as the estate – after someone has died. In this blog we provide a summary of when Inheritance Tax needs to be paid and what you need to do.
When do I pay Inheritance Tax?
There are thresholds set by HMRC that determine if inheritance tax needs to be paid.
There is a threshold of £325,000. If the estate value is below this amount, then no inheritance tax needs to be paid.
Any value above the £325,000 threshold that is left to a spouse, civil partner, a charity or a community amateur sports club, this does not incur inheritance tax.
If a parent gives a home away to their children (including adopted, foster or stepchildren) or grandchildren the threshold increases to £500,000.
For those that are married or in a civil partnership and an estate is worth less than the threshold, unused threshold can be added to a partner’s threshold when they die, which could therefore be as much as £1 million.
For an estate value that exceeds the threshold what needs to be paid?
For an estate value that exceeds the threshold, then an Inheritance Tax rate of 40% is charged on this amount.
Inheritance Tax Payments
The executor of the will handles organising the payment of Inheritance Tax to HMRC which will come from the funds from the estate.
If you have given a gift of more than £325,000 and die within 7 years, then the person or people that have received this gift may also have to pay Inheritance Tax.
More Inheritance Tax resources can be found via HMRC.
Speak to McKenzies about Inheritance Tax
It’s always worth giving our Tax team a call as there may be some tax saving opportunities which might be open to you or your beneficiaries that you perhaps aren’t aware of.
We are Chartered Accountants in Oxted, Surrey. Our team of accountants are on hand to help you navigate your personal tax returns including self-employment tax and capital gains tax.