Inheritance tax (IHT) is the tax on the estate, which is passed on due to the owner being deceased. The estate includes the property, money and possessions. This transfer rate was created on the 18th of March 1986. Working hard all your life being taxed, just to pay taxes after death. It is a tough reality in the UK but it’s a tax all estate owners should be familiar with to protect their family from IHT rates when it is passed on and they must pay.
When you don’t pay IHT
In the UK, the IHT threshold rate is £325,000. Meaning if your estate is below this value, not to worry. Whatever family you are passing it onto will not have to pay IHT. Another way inheritance tax isn’t paid for, is if everything is left either to your spouse, civil partner, a charity or a community amateur sports club. The government looks past the threshold and allows it, so charities and community amateur sports clubs can benefit. The government appreciate and admire gifting to charities and good causes. So normally giving to a charity can lower one’s tax rate on numerous fronts.
When you pay IHT
If your estate is over the threshold unfortunately you must pay inheritance tax. Any family member inheriting an estate should know the following. The current rate is 40%. This percentage is taxed on the amount after the threshold has been taken away. For example, your estate is £600,000 and you must pay IHT. £600,000 – £325,000 (threshold) equalling £275,000. This is the amount that will be taxed at the rate of 40%
Reliefs to reduce IHT
- Trusts – Creating a trust allows assets to be passed on without it being part of the ‘estate’. This means at death assets set in the trust will not have an inheritance tax
- Charity – Gifting assets to charity have many benefits. One is providing for an excellent cause, but also it does not have any IHT. Leaving at least 10% of your assets to charity will decrease your IHT rate to 36%
Here at Carrington Blake Accountancy, we pride ourselves on having an expert team of tax specialists who are genuinely passionate about what they do. This passion compels us to provide you with impeccable service, with a strong focus on presenting each client with stress-free and transparency when dealing with IHT. We take care of your finances, advise you on what is best for your specific requirements. Contact us today to learn more about the vast services we offer and if you have any further questions.