Inheritance Tax A Basic Guide
Inheritance tax rate
Depending on the size of the estate there may inheritance tax (IHT) to pay.
The current rate of inheritance tax is 40% on assets above £325,000 in 2020, in 2019 Inheritance Tax raised £5.3 Billion
Certain Gifts are exempt from Inheritance Tax, these are :-
- Gifts to a spouse
- Gifts to Charities
- Gifts to political parties
Inheritance tax reliefs : Nil Rate band and Spouse Exemption
Everyone is exempt from Inheritance tax upto £325,000, this is known as the Nil Rate band. All assets passing between spouses are also exempt from Inheritance Tax this is known as the, Spouse exemption.
Inheritance tax reliefs : Transfer of Unused Nil rate band
As assets passing between spouses do not use any Nil Rate Band, this then enables the second spouse’s estate to utilise any of the unused Nil rate band, upto £650,000.
The claim for the transfer of the unused Nil Rate band is made when the Inheritance tax return is submitted and there are a number of strict rules that must be adhered, when claiming the transfer of the unused Nil Rate band on the death of the second spouse, and must be done within two years of the secon spouses death.
Potentially exempt transfers, taper relief and other reliefs
Other gifts which do not fall under the criteria aboe may be potentially exempt transfers and as such maybe exempt from tax, if the individual survives for a period of seven years.
The rules on PET’s are complex and exempt help should always be obtained.
Gifts with Reservation
This arises when a gift is made and yet an interest is retained by someone for example, a parent may transfer their home to a son or daughter and yet continue to live in the property. In certain cases, Inheritance tax may still be chargeable on the asset transferred.
If you are unsure about inheritance tax and would like some advice call us now on 0844 740 1637.