Inheritance Tax is a tax on the property, money, and possessions of someone who has died. There’s normally no Inheritance Tax to pay if the value of your estate is below the threshold of £325,000, or you leave everything to a spouse, civil partner, charity, or a community amateur sports club. However, if you give your home to your children (biological, adopted, foster, or stepchildren), or your grandchildren, the threshold increases to £425,000. The standard amount for Inheritance Tax that is above your threshold is 40%, although it is possible to avoid lots of this tax, or possibly pay none at all in some situations.
If you’re married, or in a civil partnership, and your estate is worth less than the threshold amount, any used threshold can be added onto your partner’s threshold when you die. Their threshold can be raised to as high as £850,000, depending on the circumstances.
Funds from your estate are used to pay Inheritance Tax to HM Revenue and Customs, this is taken care of by the person dealing with the estate of the deceased; usually the executor of the will. The people that inherit your estate don’t normally pay tax on the things they inherit. Your solicitor will be able to provide further information about your specific situation.
It’s important to examine whether you’ll pay Inheritance Tax, and what to do about it. People in “risky” roles or positions are exempt from paying Inheritance Tax if they die in active service; this includes armed forces personnel, police, firefighters, paramedics, and humanitarian aid workers.
If you aren’t married, and don’t have a civil partner, but you do own join assets with another person, Inheritance Tax gets a little more complicated. Your liability to pay Inheritance Tax will depend on whether you and your partner own the property as “joint tenants” or “tenants in common” etc., and whether there’s a will.
If you are joint tenants, and your partner has left you all their possessions in the will, but it exceeds the tax threshold, you’d have to pay tax on any asset above that amount. After your partner’s death, the property would then become yours, solely.
If your partner didn’t leave a will, you have “right of survivorship”, meaning that you would still inherit the property if you both owned it. Inheritance Tax rules would still apply. However, their family would still have a claim to your partner’s share of other assets such as insurance policies and/or pension investments.
Financial gifts given away while you’re alive also count as part as your estate, and are subject to Inheritance Tax if you pass within seven years of giving the gift.
The most important thing is a will, and ensuring you know an estimate of your threshold. It may very well save your benefactors a lot of issues later down the line.
JWK Solicitors are highly qualified in matters of Inheritance Tax, and can help you plan your finances to minimise the amount that may be paid later.