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Inheritance Tax

Hodge Halsall LLP can advise you in relation to tax to ensure that  your estate pays as little UK Inheritance Tax as possible.  The information contained on this web page is aimed at providing you with a simplified overview of Inheritance Tax.  Should you require any further advice please do not hesitate to contact us

Inheritance Tax is payable on your estate if it exceeds the threshold or nil rate band (currently £300,000.00 for deaths occurring after 6th April 2007).

What is an Estate?

A person's Estate includes the total of everything:

  • owned in his or her name,
  • his or her share of anything owned jointly,
  • gifts from which he or she keeps backs some benefit (Gifts with a Reservation of Benefit), for example, if you give away your home but continue to live there
  • assets held in trust from which he or she gets some sort of personal benefit, for example, an income (Interest in Possession Trusts)

If your Estate exceeds the nil rate band then Inheritance Tax will be payable on the remainder at a flat rate of 40%.  On death gifts that are made within seven years of death are brought into the calculation  on a tapering basis as they will reduce the available nil rate band.

Does this include every gift I have made within seven years?

No, some outright gifts are exempt and the following are not included:

  • Wedding gifts of up to £5,000.00 to each of your children (including step-children and adopted children) or to the person that your child is marrying.
  • Wedding gifts of up to £2,500.00 to each grandchild or the person your grandchild is marrying.
  • Wedding gifts of up to £1,000.00 to anyone else.
  • Other gifts up to £3,000.00 in any one tax year, plus any unused balance of £3,000.00 from the previous tax year (the tax year begins on 6th April in any one year and ends on 5th April in the following year).
  • Outright gifts in any tax year up to a total of £250.00 to any number of people, but only if the total of all gifts made by you to the recipient in the same tax year does not exceed £250.00. This means that you could give £250.00 to as many people as you like.
  • Payment to the maintenance of your spouse or ex spouse, dependant relatives and usually children who are under the age of 18 or in full-time education

You can make gifts under more than one of the above headings to the same person and they will be free from Inheritance Tax.  For example, you could give £5,000.00 to your child on their marriage but also £3,000.00 as another gift and both of these would be exempt.

What happens if I leave everything to my husband or wife (or registered civil partner) or to charity?

Anything that you give during your lifetime or leave on your death to your spouse or registered civil partner is completely free of Inheritance Tax provided that both of you are domiciled in the UK for tax purposes.  Similarly, all outright gifts and bequests to UK registered charities are completely free of Inheritance Tax.  This is because the gift is to an "exempt beneficiary"

If my Estate is more than the nil rate band how is Inheritance Tax worked out?

If the value of your Estate is above the nil rate band then Inheritance Tax is payable at 40%  on  the value of the Estate which is over the threshold.  The following are however exempt from Inheritance Tax:

  • Anything you leave to you husband or wife or registered civil partner.
  • Anything to you leave to a UK registered charity.
  • Any bills or debts you have outstanding at your death including your funeral expenses.

In addition some assets qualify for relief against Inheritance Tax at either 100% or less for example assets qualifying for Business or Agricultural Property Relief

Who pays the Inheritance Tax?

The Executor or Administrator (also known as the Personal Representative) is liable to pay any Inheritance Tax due on an Estate from the Estate monies.  Interest is charged on any tax not paid by the due date no matter what caused the delay in payment.  Inheritance Tax is due to be paid by six months after the end of the month in which the death occurred.

Please contact us for further information.