Inheritance Tax is the tax on an estate of someone who has died. An estate can include property, possessions and funds, and Inheritance Tax must be paid on estates above the current £325,000 threshold. In April this year, a new threshold will be announced, alongside a “family home allowance” which will mean that families who inherit an estate will only have to pay Inheritance Tax on estates over the price of £350,000.
What is the Inheritance Tax Threshold
The current tax threshold for Inheritance Tax is £325,000. However, this is set to change within the next couple of weeks. It’s thought that this new change will bring down the inheritance tax cost for all estate sizes, even those that include family homes. This will eventually make it easier for children of deceased parents to inherit an estate without having to pay a large inheritance tax in order to do so.
Smaller estates will still be exempt from inheritance tax, meaning that estates under the £325,000 limit will not be taxed by the government. If you leave your estate to a partner, both spouse and civil partner alike, this will also mean that they are exempt from paying council tax. The same goes for if you leave your estate to a charity. If you’re leaving your estate to your children, they will only need to pay Inheritance Tax on £425,000.
Usually, when an estate is passed on, the deceased will have appointed an executor of the will. This is the person who will have to liaise with HMRC on paying the tax.
Inheritance Tax Threshold Married Couples
If you’re married, and you decide to leave your estate to your partner, you will not need to pay the inheritance tax. As of 2015, the same can be said for children and grandchildren who will inherit from their family members. There is no limit on when you can marry your partner, and there is no need to worry about having your marriage questioned if you marry before you die. If the marriage is legal, then it is binding. If you are leaving your estate to a partner who you are not married to, or not in a civil partnership with, they will have to pay inheritance tax if the estate comes to the value of £325,000 or over. If you would rather your partner didn’t pay any tax on your estate, you can find more information on how to reduce your inheritance tax below. You will find that there are ways to reduce the tax on your estate by “gifting assets” to friends outside of the immediate family.
Inheritance Tax Threshold Increase
Increases are due to be made in April this year, allowing for buy to let properties to be added on to an estate. This can potentially change the amount of any potential estate you may have when you pass away. If you have any buy to let properties in your possession, you can talk with a solicitor to see if any inheritance tax will be added to your estate when you pass away.
Reducing your Inheritance Tax
One way that you can reduce your Inheritance Tax, is by gifting assets to loved ones and friends. Each year, an individual can gift up to £3000 worth of property to members immediately outside of the family unit. Doing this will reduce any inheritance that they may need to pay on your estate after you have passed away. This can be done for married couples, those who are leaving their estate to friends, or for those who are leaving their estate to estranged or adopted children.
If you are unsure of how much potential inheritance tax your family may need to pay, we suggest you speak with a member of HMRC as soon as possible. You can also talk to your solicitor if you are worried about your estate or about its potential tax implications.