A lot of people ask the question, what is inheritance tax? Most of us have heard of it, but not so many of us know precisely what it means. Unfortunately, it’s something that the majority of us will have to deal with at some point in our lives.
Here at SRG LLP we have over 100 years of experience behind us. We’re a small independent firm, and that means we can dedicate ourselves to our clients. Our mission is to help people, and we like to think we do that with integrity. Read on for our brief guide on inheritance tax, and how you can avoid it.
What is inheritance tax?
It used to be thought of as something that only affected wealthy people. But times have changed, with many more people now owning property. When someone passes away, they generally want their family to benefit from what they leave behind. In a nutshell, if the value of this is less than £325,000, there will be no tax to pay. But anything above that figure will be subject to tax.
When do you pay inheritance tax?
You need to pay this when you become the beneficiary of someone who’s passed away. If a relative has left you property, the tax must be paid within six months of the relative’s death. If the tax isn’t paid within that time, the government will start to charge interest on the money owed.
How much is inheritance tax?
Inheritance tax is charged at the rate of 40%. So if a property is worth £525,000, it would be £200,000 over the £325,000 tax threshold. 40% of £200,000 is £80,000, so that’s how much inheritance tax would be due. Obviously the amount of tax depends on the value of the property. In other words, the more the ‘estate’ is worth, the more tax there is to pay.
How to avoid inheritance tax
There are a number of legitimate ways to make sure you avoid a huge inheritance tax bill. For example, if you’re married or in a civil partnership, you can pass your estate on to your spouse tax-free. Making a will is a very good way of doing this, though we would advise you to take professional advice. You can also pass on any tax-free allowance that hasn’t been used to your surviving partner.
If you place money or property in a trust, your beneficiaries won’t have to pay inheritance tax on it. You can also make a gift to your children or other members of your family. As long as you live over seven years after making the gift, no tax will be due. You can also get relief on business property and agricultural property to help reduce the tax bill.
We’ve provided a simplified answer to the question, what is inheritance tax? But obviously there’s a little more to it than that. To find out how we can help with your inheritance tax planning, why not contact us today?