What is meant by Inheritance Tax?
Inheritance Tax is normally paid on an estate when someone dies. Often it is payable on trusts or gifts made during someone’s lifetime also. It is often the case that estate’s don’t have to pay Inheritance Tax as they are valued less than the Inheritance Tax threshold.
What is the Inheritance Tax Threshold?
Not every person has to pay inheritance tax. It only becomes due if your estate – including any assets held in trust and gifts made within seven years of death – is valued over the Inheritance Tax threshold which currently is £325,000 for 2009-2010.
The inheritance tax is payable at 40% on the amount over the threshold.
What is the case for married couples and civil partners?
Since October 2007, married couples and registered civil partners can increase the threshold on their estate when the second partner dies. This can be increased to as much as £650,000 in 2009-2010. The personal representatives or executors must transfer the first spouse or civil partner’s unused Inheritance Tax threshold to the second spouse or civil partner when they die.
Who will have to pay the Inheritance Tax?
- In most cases it is the executor of the estate or a personal representative who pays the Inheritance Tax using funds from the deceased estate.
- If assets have been transferred into a trust then it is usually the trustees who will be responsible for paying the Inheritance Tax.
- In some cases people who receive gifts or who inherit from the deceased have to pay Inheritance Tax but this is not a common scenario.
How do I know if I have to pay Inheritance Tax?
In order to understand whether you have to pay Inheritance Tax on an estate you will first be required to value the estate. You will be required to add up the value of all the assets in the estate deducting any debts that the deceased may have owed. The assets could be anything from possessions, money, investment or a house whereas debts include any household bills owing and the costs of the funeral.
If the deceased has made any gifts during their lifetime you should also evaluate them in order to see if they are exempt and include them in the overall calculations of the estate.
When valuing the estate what do I need to look for?
The following are assets that should be included when calculating the value of an estate:
- Money in bank accounts or a building society
- Houses and land
- Personal belongings – specifically jewellery and antiques etc
- Assets in any trusts from which the deceased may have benefitted
- Payouts from life insurance policies
- Foreign assets which are held abroad including foreign bank accounts, property or shares
You must also look at any gifts given away by the deceased in the seven years before his or her death and whether they owned any property jointly with another person.
For more information on:
- Are there any exemptions to the Inheritance Tax Threshold?
- When will I have to pay Inheritance Tax?