Inheritance tax (IHT) is levied on estates valued over a £325,000 threshold. Estates valued less than this will not have to pay any IHT and the threshold itself can be increased through a multitude of methods.
If everything in the estate above the £325,000 threshold is left to a spouse or civil partner, there will be no IHT to pay.
Additionally, a person’s threshold can be increased to £500,000 if their home is left to children or grandchildren.
If these options are not available, or if the person involved wishes to leave their estate to non-family members, they’ll likely be charged the full rate of IHT.
As it stands, IHT is levied at 40 percent where applicable.
However, people can lower this rate if certain actions are taken.
The estate in question could pay IHT at a reduced rate if at least 10 percent of the total “net value” if left to a charity.
It should be noted that planning this option out will likely take some time.
The government details that the process of valuing an estate (to get a figure for the net value) can take up to nine months to be completed.
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Estates that do owe IHT will need to complete payments within certain time frames.
If IHT is due, the parties involved will need to:
- Send IHT forms to the state within one year
- Start paying the tax by the end of the sixth month after the person died
Payments for IHT can be made before the estates valuation is completed to get ahead of the overall bill.
To find out if IHT is due once a person has died, an estimated value of the estate will need to be calculated before the finalised figure is found.
The “gross” value of the estate will need to be identified for this.
This is the value of the person’s assets plus “gifts”.
Assets within an estate can cover various items, including:
- assets held by organisations the person’s written to – such as money in the person’s bank account, pension or investments
- possessions – for example a house, jewellery, furniture or car
- payments when the person died – for example life insurance or a lump sum ‘death benefit’ from a pension
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