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Inheritance Tax FAQs Side Arrow

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Inheritance Tax is charged on the value of someone’s Estate when they die. For these purposes, the Estate will comprise everything they own (personal belongings, life assurance policies, their house, any investment land or property, their cash, investments & savings), their share of anything which was jointly owned and the value of anything which they have given away in the previous 7 years. If this all adds up to more than the tax threshold, which presently is £325,000.00, then the excess over and above the threshold is taxed at a flat rate of 40%.

There are many exemptions and reliefs. For example, quite regardless of the amount involved, anything which is given to a spouse or to a partner registered under the Civil Partnership Act 2004 or to a Charity will be exempt from tax. Also, some kinds of assets such as business property will be exempt from tax. You should also be aware that some lifetime gifts will be disregarded when everything is added up.

Where a spouse or Civil Partner does not fully utilise their tax threshold, because for example the whole or part of their Estate passes to their widow/widower or surviving Civil Partner, or to charity, then the Estate of the widow/widower or surviving Civil Partner will have the benefit of an enhanced tax threshold. This is often referred to as the transferable nil rate band. There is more information about this in our guide which you can access by clicking on the related link at the side of this page.

There is a tax break for a private residence which is left to a direct descendant; our Inheritance Tax guide gives more information. This tax relief is transferable between spouses and civil partners. It is worth £175,000 or £350,000 per couple. This would reduce the tax bill by £140,000. It is only available up to the value of your property so for example if your property is worth £150,000 you would only be able to claim an additional £150,000 not £175,000.

No. The tax will apply whether you die having made a Will or without having made a Will. However, the process of making a Will gives you an opportunity to plan for the tax and to minimise or even avoid the exposure of your Estate to paying the tax.