Inheritance tax, (referred to as
IHT), can often be a confusing aspect of inheritance, for both the people
writing the wills and the beneficiaries too. However, like with many aspects of
finance, law and tax, inheritance tax is not as confusing as it may first seem.
I know how important it is to understand these matters, and can offer professional advice on all matters surrounding wills, probate, IHT and lasting power of attorney. Here are a few things that I’ve discovered most people don’t know, or understand, about inheritance tax.
The ‘Nil-Rate Band’
Currently, the first £325,000 of your estate does not attract Inheritance Tax. This is not because it is not taxable, but because it is taxed at 0% – hence the term “Nil Rate Band”.
Anything you pass over and above
this is taxed at 40%.
You Can Only Pass Limited Amounts To Your Spouse
For Married people or those in a Civil Partnership, the Nil Rate Band does not apply and so you can pass any amount and this will be exempt from Inheritance Tax. This also applies to anything you pass to a registered charity.
You Can’t Gift More Than £3,000 In Any Year
This is a misconception. £3,000 is
an annual amount that is exempt from inheritance tax. You can, in fact,
pass any amount by way of a gift and, as long as you survive 7 years, that
amount will be exempt from inheritance tax on your death.
You Can Give Something Away And Still Benefit From It
Some people think that they can reduce their exposure to IHT by, say giving their house away to their children. Unfortunately, this is not the case. Another criteria, in addition to having to survive 7 years as mentioned about, is that you have to also stop benefitting from any gift you make. So, in the case of your house, as you will continue to live there, the “7-year” clock does not start until you stop benefitting, ie stop living there!
You are taxed on more than you
Many people only consider their house and cash in the bank as being subject to inheritance tax. This is not the case; life policies (not held in trust) that pay out as a result of your death also add to this total value. Death in Service payments and some pension lump-sum payments may also pay to your estate, adding to the IHT liability.
In addition, your executors would need to value all of your worldwide assets and any inheritance tax is payable on all of these worldwide assets. Relief may be available if you also pay some form of IHT in a foreign country on the same assets, but this will depend on which country the assets are held in.
Inheritance Tax can be a very complex area of law and it is very important that you get it right – as it may be too late to rectify after you die.
I am a professional Will writer based in Leicester with over 18 years’ experience in this area of law. Get in touch today for a friendly, sensitive service that offers free home visits and weekend and evening appointments to make the process as easy as possible for you or your loved one.