Inheritance tax can be a little confusing for some people. Paying tax on a pot of money that you have already paid tax on seems a little unfair. However, in this article we explain what inheritance tax (IHT) is and when someone will be subjected to it.
What is inheritance tax?
IHT is taxed at 40% of a deceased person’s estate(s) if those estate(s) are worth over the IHT threshold, which is currently £325,000 tax applied.
There are occasions when IHT doesn’t need to be paid:
- If the value of the estate(s) is below the £325,000 threshold
- Leaving everything above the £325,000 threshold to your civil partner, spouse, charity, or a local amateur sports club
It is the executor’s job to pay the inheritance tax as well as administer the estate and allocate funds and assets to the beneficiaries.
What’s included in the estate(s)?
For the purpose of IHT the estate(s) includes:
- Your savings
- Possessions including property
- Pension funds (certain payments from pension funds may be subject to IHT)
- The value of any money or property you gave away during the seven years prior to death – some of these might be subject to exemptions so it is important to check
The first £325,000 of your estate is tax-free so the 40% tax will only apply to anything over this value.
Who is subjected to inheritance tax?
In many cases where someone has died and the assets in their estate exceed the allowance for their circumstances, then the estate will pay the inheritance tax.
If there is a will then it is the job of the executor (or administrator if there is not a will) to be responsible for organising the payment of IHT to HMRC. It is normally paid directly from the deceased’s bank account or other qualifying assets.
Speak to the inheritance tax experts
Our team of experienced professionals will be able to assist you in all areas of IHT planning and will be able to advise you on what to look out for.