This is a particularly complicated area of law and if you need advice about it please ask us for help. These questions and answers just touch the surface of inheritance tax.
Select a question from the list below and click on it to reveal the answer:
Q. What is inheritance tax?
| A. Inheritance tax concerns most people on their death. Every person has a “nil rate band” which is £312,000. You can leave £312,000 on your death and depending on who your assets go to, everything above that is taxed at 40%. Inheritance tax can also be payable if you make large gifts into a trust during your lifetime, and can be payable by some Trusts. |
Q. I have assets worth £600,000. Does that mean if I leave everything to my wife she will have to pay inheritance tax when I die?
| A. No, because certain beneficiaries are exempt from tax. Your spouse is an exempt beneficiary and so is a charity. You can leave your wife as much as you like and there will not be any inheritance tax on the assets you leave to her. |
Q. Isn’t the nil rate band £624,000 now?
| A. No. The nil rate band is still £312,000. However, married couples can now transfer the nil rate band of the first one to die to the survivor. If you leave everything to your spouse or civil partner then that person will have two full nil rate bands at the rate which applies when they die. However, if you are living together but not married or in a civil partnership you still only have one nil rate band. |
Q. I want to make a gift to my son. Isn’t there some problem if I die within 7 years?
| A. This is quite a complicated question because it depends what you want to give and how much you want to give. Broadly speaking, if you make a gift of under £3,000 then it will not affect inheritance tax on your estate. If you give more than £3,000 then you have to survive for 7 years in order for the gift not to be counted as part of your assets on your death. There are certain sort of assets which you can give during your lifetime and will not be taxable on your death – for example an asset which attracts 100% agricultural property relief. There are also certain other exemptions and reliefs which might apply. |
Q. If I make a gift, doesn’t the tax get less the closer I get to surviving for 7 years?
| A. This is only the case if you have given more than the nil rate band – it is the surplus where the tax gradually reduces under the taper relief rules. |
Q. I am worried about how my children will find the money to pay the tax on my death. Is there anything I can do about this?
| A. There are various ways of planning for payment of the tax. Sometimes people take out a life policy in trust in favour of their beneficiaries which produces cash available to pay tax. However you may not realise that tax on “real property” – land and houses – can be paid over 10 years in ten equal instalments. That makes it much easier to find the tax in the first instance. There is also an established procedure for banks, building societies etc. to release money to pay inheritance tax even before the Grant of Probate has been issued. |
