Inheritance Tax – a brief overview

Inheritance Tax is paid on an estate when somebody dies if it is valued above the Inheritance Tax threshold of £325,000.

Therefore if your total estate is valued at over £325,000 (in 2009-2010) an Inheritance Tax at a rate of 40% is payable on the amount above the £325,000. Gifts made within seven years of death are included (apart from those for a disabled person).

‘Nil Rate Band’ (NRB)

The nil rate band NRB is the value of an estate that is not subject to Inheritance Tax in the United Kingdom (£325,000 in 2009-2010)

Threshold for married couples and civil partners

Married couples and civil partners can increase the threshold on their estate when their partner dies up to £650,000 (in 2009-10). Their executors or personal representatives must transfer the first spouse or civil partner’s unused Inheritance Tax threshold or NRB to the second spouse or civil partner when they die.

Occasionally people who have received gifts, or who inherit from the deceased, have to pay Inheritance Tax - but this is not common.

Valuing an estate to see if Inheritance Tax is due

To find out if Inheritance Tax is applicable you must value an estate by adding the value of all the assets and deducting debts, outstanding bills and funeral expenses etc. When making this calculation you must include the deceased’s share of any jointly owned assets and trusts.

If gifts were made you will need to evaluate if they are exempt (see below).

HM Revenue & Customs IHT exemptions and reliefs examples

Even if your estate is over the threshold, you may be able to pass on assets without having to pay Inheritance Tax. Examples include:

• Spouse or civil partner exemption. Your estate usually doesn’t owe Inheritance Tax on anything you leave to a spouse or civil partner who has their permanent home in the UK - nor on gifts you make to them in your lifetime - even if the amount is over the threshold.

• UK charity exemption. Any gifts during your lifetime or in your will - will be exempt from Inheritance Tax.

• Potentially exempt transfers. If you survive for seven years after making a gift to someone, the gift is generally exempt from Inheritance Tax, no matter what the value.

• Annual exemption. You can give up to £3,000 away each year, either as a single gift or as several gifts adding up to that amount.

• Small gift exemption. You can make small gifts of up to £250 to as many individuals as you like tax-free.

• Wedding and civil partnership gifts. Gifts to someone getting married or registering a civil partnership are exempt up to a certain amount.

• Business, Woodland, Heritage and Farm Relief. If the deceased owned a business, farm, woodland or National Heritage property, some relief from Inheritance Tax is available.

Paying Inheritance Tax

Personal Representatives are required to complete and deliver an account of the deceased's estate for Inheritance Tax purposes to the HMRC.

There are several ways to pay the Inheritance Tax due which include paying on account or paying in instalments.

In most cases Inheritance Tax must be paid within six months of the end of the month in which the deceased died. After this, interest will be charged on the amount outstanding.

You can pay in annual instalments over ten years if the value of the estate is tied up in property such as a house.

Due dates differ if Inheritance Tax is payable on a trust.

Important Notice

Inheritance Tax covers all aspects of a person's assets and family history and cannot be summarised in a short item such as this - it can be complex dependant upon the deceased situation.

Your local Wills & Probate practitioners can assist and advise to ensure you correctly deal with any Inheritance Tax matters.

The information provided above is for information purposes only.

For professional guidance contact your solicitor FIND A SOLICTOR LINK.

or For more information on Inheritance Tax: http://www.hmrc.gov.uk/inheritancetax/