It is devastating to lose a loved one, and probably the last thing on your mind will be mastering the UK tax system to sort out inheritance tax (IHT) issues. However, shortly after a bereavement it is important that professional advice is sought to provide support through the process and to ensure that legal requirements are met.
The following page on the UK Government website gives you an overview of the law.
This is the tax payable on the estate of a person when they die. An estate is essentially the value of Assets less all liabilities of a deceased person.
The current inheritance tax threshold is when the value of an estate is above £325,000, however there are caveats should part of the estate be left to a charity or sports club. The allowance is increased to £500,000 where the home is given to the deceased children or grandchildren. The family home is usually not subject to capital gains tax if sold, however it may be subject to IHT.
The estate of the deceased person will usually pay HMRC any amount due, however, if the estate doesn’t pay it or cannot pay it then the person who inherits will have to pay.
This happens when the estate is comprised mainly of assets and has no cash. Usually, an estate has six months to pay HMRC. There are situations where the timing of payments to HMRC are different. If you have assets that are worth above £325,000, its best to plan ahead as there are many legal ways of avoiding this IHT altogether.
There are various circumstances where additional allowances are applicable, and therefore it is always best to seek professional advice when dealing with inheritance tax, to minimise the tax burden on the estate.
However, in a nutshell, the tax is payable on estates worth more than £325,000. An estate is defined as the property, savings, and any other assets of value, after any outstanding debts and funeral costs have been paid.
The current rate of inheritance tax is set at 40%, payable above the threshold. Further details of the legislation can be found on the following page on the UK Government website.
Although the percentage of the tax rate is high, it is important not to panic and to seek professional advice.
There are many factors when calculating the tax payable, including any gifts that were given when the deceased was still alive and therefore due to the complexities, appointing an accountant is highly recommended.
There are entire exemptions to inheritance tax such as if the whole estate is left to a spouse or partner or charity. A reduction in the percentage of inheritance tax payable maybe applicable if more than 10% of the net value of the estate is left to a charity, formalised by a will.
There are also other reliefs available such as business relief and agricultural relief.
Another scenario which increases the inheritance tax threshold is where one partner dies, leaving the estate to the other, and subsequently they pass away. In this case, any unused threshold from the first valuation of the estate will be added to the threshold of the second partner. In such circumstances, the inheritance tax threshold can be one million pounds.
There are legal methods to avoid or reduce the liabilities on inherited property.
The first step to both ensuring that you have some control of your assets after your death, and to document any plans to reduce the tax is to make a will. Without this formal documentation, assets will be shared following intestacy rules.
Accountants can assist with tax planning, providing advice on various methods to timely organise assets with an objective of reducing the inheritance tax burden.
There are an array of legal options available. These include, but are not limited to:
At the Finance Equation, our specialists are passionate about helping our clients keep more of their money. We can manage any concerns about to navigate the IHT maze.
If you have a property business and want to know how to avoid inheritance tax on property, we can help you to totally avoid paying it by using a specific company structure. Qualifying to use this structure would allow you to save a substantial amount of IHT. This complies with current UK case law and statute.
We are happy to discuss the process with you. Call us to schedule a complimentary consultation.
Finance Equation Ltd are multi-award-winning Chartered Certified Accountants providing cutting-edge expert services to individuals, property investors, businesses and contractors.
The Finance Equation Ltd is a company registered in England & Wales. Company number 05116983. Business address: Finance Equation Ltd, 334 Ley Street, Ilford, Essex, IG1 4AF.
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