Everyone has a basic Inheritance Tax (IHT) Allowance of £325,000. On top of that some people qualify for an additional property allowance (the Property Nil Rate Band) of £175,000.
When someone dies their estate must be valued for IHT purposes. Everything that the deceased owns must be valued including assets held jointly with another person that pass to that other person by survivorship.
Once valued the available allowances and exemptions can be applied to the value of the estate and, if necessary, the tax calculated.
There are two types of beneficiaries – exempt and non-exempt. Exempt beneficiaries are spouses and charities. Non-exempt beneficiaries are everyone else including children.
Your estate could be worth in excess of the £325,000 IHT allowance but if it all passes to an exempt beneficiary, no tax will be due. If your estate is worth more than the allowance and passes to non-exempt beneficiaries, then the first £325,000 will not attract tax but any value over and above this sum will be taxed at 40%.
It is important to remember that any gifts made to non-exempt beneficiaries in the seven years prior to death have to be added back into the estate for IHT purposes.
Completion of inheritance tax returns can be complex, and it is usually beneficial to consult a specialist who can make sure appropriate allowances are claimed and that the return is complete. HMRC do issue penalties for returns found to be incorrect and can, and do, make further enquiries into a proportion of estates.
The contents of this article is intended for general information purposes only and shall not be deemed to be or constitute legal advice. We cannot accept responsibility for any loss because of acts or omissions taken in respect of this article. If you would like advice concerning inheritance tax mitigation or the completion of inheritance tax returns following a death, please contact Roz Wyeth on 02392 001551 or by email roz.wyeth@wyethpaullaw.co.uk.
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