For the "wealthy"?
Though the threshold to start paying inheritance tax can seem high, this can be eaten up by the property you own. Particularly due to rising house prices, more and more people are being affected by Inheritance Tax and should be thinking about planning.
Inheritance Tax Planning can give advice on how to take advantage of what the system allows. For example, you can give up to £3,000 a year, as well as any number of small gifts of up to £250 each, which you don’t have to pay inheritance tax on.
There’s no need to pay Inheritance Tax on wedding or civil partnership gifts to your child up to £5,000, or £2500 for your grandchild or great-grandchild.
7 year rule
You are free to give away bigger financial sums that will avoid inheritance tax altogether, as long as you live for at least seven years from the date of giving the gift.
Family Home Allowance
A nil rate band has been added to the existing thresholds which means that by April 2020 it will be worth £175,000. This extra allowance is transferred to your spouse when you die, which means that a married couple can potentially leave an estate of up to 1m without incurring any inheritance tax. To be eligible, the money must be left to a direct descendant.
If you give 10% of your estate to charity, then the tax rate goes down to 36%.
Inheritance Tax is paid by the executors of a will, though ultimately it simply reduces the value of the estate that is passed onto to the beneficiaries of the will.
You should pay your tax 6 months after the death of the person.
Inheritance tax is assessed when the executors of an estate apply for probate or administrators apply for Letters of Administration.
Probate just means the legal right to distribute the estate after death.
Residence nil rate band is the value of an estate which is not subject to inheritance tax. This is currently £125,000 (2018-2019) but by 2020 will be increased to £175,000. This means that a couple could end up leaving their children feasibly up to £1million in assets.
There is a false perception that only the wealthy are affected by Inheritance tax. However, rising house prices mean that many other people are also affected. Also, the new £1million threshold only applies to married couples, so single or divorced people only need to have over £500,000 in assets to be affected.
No! The tax is only paid to children or other beneficiaries.