The issue of inheritance tax (IHT) has come under a lot of debate in the past few months with political parties making promises to raise the threshold ahead of the elections in the UK. But here’s what you need to know about the IHT.
What is the threshold?
The current IHT threshold for the tax year 2015/16 is £325,000. This tax is paid if a person’s estate – property, money and possessions – is worth more than the threshold. This figure has remained the same since the 2010/11 tax year. For people who are married or in a civil partnership or widowed, the threshold is £650,000 between them.
What about tax rates?
The rate of IHT is 40 per cent on anything above the threshold. This rate may be reduced to 36 per cent if 10 per cent or more of the estate is left to a charity. For example, if an individual is single and dies with an estate worth more than £325,000, 40 per cent tax will be due on £175,000.
When is inheritance tax paid?
The main situations when IHT is due is:
• when assets are transferred into a trust, when it reaches the 10 year anniversary of when it was set up,
• when assets are transferred out of a trust,
• or when the trust ends and when someone dies and a trust is involved when sorting out their estate.
Who pays inheritance tax?
IHT is usually paid by the executor of the will or the administrator of the estate using funds from the estate. Trustees are responsible for paying IHT on trusts.
Are there any reliefs?
IHT reliefs allows some assets to be passed on free of tax or with a reduced bill. The executor of a will or administrator of an estate should claim the reliefs when they are working out how much the estate is worth. Some other reliefs include business, agriculture, woodland relief and heritage assets.
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