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Answering the Most Common Questions on Inheritance Tax

What are the Inheritance Tax thresholds?

Inheritance Tax (IHT) is a tax that is levied on the estate of a deceased person. The basic threshold for Inheritance Tax is £325,000. This threshold is known as the "nil-rate band." Estates valued below this threshold are not subject to Inheritance Tax.


How much is Inheritance Tax?

For estates exceeding the IHT threshold, the tax rate is generally 40%, on the part of the estate that is over the threshold.


There are also a number of exemptions and allowances that might apply, such as the residence nil-rate band, which can increase the threshold for individuals leaving their main residence to direct descendants.


Does Inheritance Tax apply to the deceased’s Spouse or Children?

Where most or all of an estate passes to someone's surviving spouse or civil partner, those assets are generally exempt from Inheritance Tax.


Everyone in the UK has a £325,000 allowance before IHT is payable. When a person passes away, their spouse automatically gets their allowance added to theirs, making their new threshold £650,000 upon their own death. Effectively doubling their inheritance tax threshold.


If the deceased person passes on their main residence to their children (including adopted, foster and stepchildren) there is an additional allowance of £175,000 on top of the £325,000 IHT allowance, increasing the threshold to £500,000.


How is Inheritance Tax calculated?

IHT is calculated based on the total net value of the estate of the deceased person. This includes all the assets owned by the deceased person such as property, money, investments, vehicles, jewellery etc. Once this is known, the amount of IHT that needs to be paid can be calculated.


When do you pay Inheritance Tax?

IHT must be paid to HMRC by the end of the sixth month after the person's death. If it's not paid by then, HMRC will likely start charging interest. Executors can choose to pay the tax on certain assets, such as property, by instalment over ten years.


Who is responsible for paying Inheritance Tax?

The responsibility for reporting the value of the estate, the amount of IHT due and paying IHT falls on the executor or administrator of the deceased person's estate. They are personally liable for this.


For more information or to speak to a member of our team please do contact us.

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