What is inheritance tax?
Inheritance tax is a tax that sometimes has to be paid on a person’s estate after they have died. Because talking about death is uncomfortable for many of us we don’t tend to dwell on it, but have you thought about what happens to your assets when you die? And the process that your loved ones might need to go through when you are no longer around?
When is inheritance tax paid?
Do you know if inheritance tax will need to be paid on the value of your estate, or an estate that you are administering?
There are various instances where inheritance may not need to be paid, the most common are set out below;
- If the estate has been solely left to the spouse or civil partner of the deceased
- If the estate has been left to a charity
- If the estate is valued at less than £325,000 – this is referred to as the ‘nil rate band’ – or if you are entitled to the residence nil rate band. If you are entitled to both of these you could potentially have a nil rate band of £500,000.
Reducing inheritance tax
Many people don’t really consider inheritance tax until it’s too late, but we really do encourage our clients to go through all of the options available to them before they die. This means that there won’t be any confusion for their loved ones, and we could potentially help them to consider any options for reducing inheritance tax, such as discretionary trusts, charitable gifts and potentially exempt transfers.
If you have been left an estate in somebody’s will, and it doesn’t come under any of the above exemptions, then you may need to pay inheritance tax. How much tax you pay depends upon the value of the estate and how it has been organised in the person’s will. You’ll need to go through all of their assets – this includes their possessions, as well as bank accounts, life insurances and stocks and shares. These need valuing, and then reporting to HMRC.
Get in touch to find out about some of the ways in which you could reduce the tax payable after you die, or for help with valuing an estate.