Inheritance Tax
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- 1st Sep 2023
- News & Insights
“Why do I need to know about inheritance tax?”
The idea that inheritance tax only applies to the very rich may have been true in the past, but it’s no longer the case. Many more people now find themselves caught. And while this may mean a healthy boost for the government’s coffers, it comes at a cost to families that are inheriting less accrued wealth.
Inheritance tax isn’t for everyone. Some won’t have to pay it, nor is it automatically a big consideration when planning for the future. But for those that inheritance tax does, will or may affect, it really does pay to understand what it means and how its effects can be mitigated.
Inheritance tax – at a glance:
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It's a tax on the value of assets (‘the estate’) of a person who has died.
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It’s generally payable on the value of the estate that exceeds £325,000, although whether it’s payable or not depends on who the beneficiaries are. For example, inheritance tax isn’t generally payable if everything passes to a surviving spouse.
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The £325,000 figure is known as the ‘nil-rate band’. This is a person’s tax-free allowance. There is also a ‘residence nil-rate band’ of £175,000 which can apply where a direct descendent of the person who has died is set to inherit their home.
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The rate of inheritance tax is fixed at 40%. Leaving money to charity can reduce this.
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Making gifts can be a way of avoiding inheritance tax, but this needs to be done wisely. A gift to a spouse or civil partner will not attract inheritance tax. But if you gift some money or another asset to someone else, it won’t be counted as part of your estate for inheritance tax purposes only if you go on to live for at least seven years.
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There are various ways of structuring affairs to reduce the amount of inheritance tax that may be set to apply to an estate. And the benefits of doing this can be far-reaching, maximising the amount loved ones stand to benefit from the wealth you have accumulated and the assets you’ve acquired.
If you’d like to understand more about how inheritance tax could affect you and your family, or to talk to us about other aspects of planning for your future, contact us on 01264 353411.