Home > Finance and Pensions > Inheritance Tax

Inheritance Tax

By: Jeff Durham - Updated: 14 Jun 2010 | comments*Discuss
 
Inheritance Tax Inheritance Tax

Not so long ago inheritance tax was something that the majority of us didn’t have to worry about. But over recent years, house prices have continued to rise at a rate which far outstrips the increase on the threshold upon which we’re liable to pay inheritance tax, which means that many properties now fall into the inheritance tax ‘bracket’. In the tax year 2007/8, for example, the threshold is £300,000 which means that, if the value of your entire estate exceeds this figure - this includes gifts given to you in the previous 7 years in addition to the value of your house, then tax is due on the balance at a rate of 40%.

Inclusions
When calculating liability for inheritance tax, it includes:
  • Everything that was owned outright in a person’s name and any share of the value of things they owned jointly upon their death
  • Gifts which they have given but which they still derived some financial benefit from – an example being a home which was given by a parent to a son or daughter but in which the parent still lived
  • Any assets held in trust from which they derived an income
Once that figure has been calculated then it’s necessary to subtract any monies the person owed such as outstanding mortgages, loans, credit cards, unpaid bills etc and funeral expenses. Once these figures have been subtracted, then that is the total figure which, if it totals over £300,000, the amount above that figure would be liable for inheritance tax at 40%.

Ways of Minimising Your Liability
Any sums of money which are given away if the giver survives for 7 years after making the ‘gift’ are not liable for tax. They’re classed as ‘potentially exempt transfers’. An example of this would be a trust fund which you’ve set up for your grandchildren which they’re unable to gain access to until they reach a certain age. There are also other exemptions which don’t have to fulfil the 7 year rule. These include wedding gifts of up to £5000 for each of your children, up to £2500 for wedding gifts for a grandchild or up to £1000 for a wedding gift to anybody else.

You are also allowed to gift anybody else up to £3000 in total per year plus any unused balance of the £3000 exemption from the previous year’s allowance. Other exemptions include donations to charity, the National Trust, the main political parties, national museums and most registered housing associations. Regular gifts to a family member out of your after-tax income are also exempt providing you still have enough income to maintain your standard of living – an example might be a monthly financial ‘allowance’ you give to another family member. Gifts between husbands and wives are also exempt whether they were made whilst both husband and wife were still alive or left to the surviving spouse after one of them dies. In this situation, it’s only when the surviving spouse dies too that any gifts might become liable for tax if the total value of a person’s estate is above the inheritance tax threshold.

Should the giver of a gift die within the 7 year period, it may still be possible to reduce the amount of tax payable on a gift through something called ‘taper relief’ and you should find out more if this is applicable to your situation.

When the Tax Must Be Paid
Inheritance tax must be paid within 6 months of the death of the person whose estate has become liable. If it isn’t, interest will be charged in addition on the unpaid amount and the liability threshold is determined by the date upon which the person dies for calculation purposes. In certain instances, such as the tax on any land or building assets, the tax can be spread out over a 10 year period and paid in instalments. However, if the asset is then sold over this period, the remaining sum of tax liability must then be repaid immediately.

If you think you might be liable, you should see a specialist legal advisor who deals with all aspects of inheritance tax and visit the HM Revenue & Customs website.

You might also like...
Share Your Story, Join the Discussion or Seek Advice..
Why not be the first to leave a comment for discussion, ask for advice or share your story...

If you'd like to ask a question one of our experts (workload permitting) or a helpful reader hopefully can help you... We also love comments and interesting stories

Title:
(never shown)
Firstname:
(never shown)
Surname:
(never shown)
Email:
(never shown)
Nickname:
(shown)
Comment:
Validate:
Enter word:
Topics
Latest Comments
  • Judith
    Re: Clubs to Join in Retirement
    Are there any activities or groups currently taking place in Wakefield for over 60’s. I am a social person missing human company.
    7 October 2020
  • Brenda
    Re: Clubs to Join in Retirement
    Very young 75 year old looking for friends for days out and meals etc. In my area. I am a twin she is also on her own. Young at…
    7 October 2020
  • Fancy
    Re: Clubs to Join in Retirement
    Widowed over 2 half years but nice to socialise again
    29 September 2020
  • Wendy
    Re: Clubs to Join in Retirement
    I'm 63 and still working but love walking, swimming & days out. I drive & am happy to travel. I'd love to have a friend to walk or…
    23 September 2020
  • hillmill
    Re: Clubs to Join in Retirement
    Hi, I recently lost my husband and I am looking for companions that would like to meet up and maybe do day trips and coffee meet…
    21 September 2020
  • Jeanne
    Re: Clubs to Join in Retirement
    I have recently moved to Long Buckby Northamptonshire living with my Son and family, I would love to have female friend to chat to…
    16 September 2020
  • Shylady
    Re: Clubs to Join in Retirement
    I am a young 71 year old and lost my husband last year am looking for someone who has the same interests and would enjoy my…
    14 September 2020
  • Dolly
    Re: Clubs to Join in Retirement
    I am a 68 year old lady I have just lost my beloved husband due to the virus he was 71 and in good health so it was very sudden I…
    13 September 2020
  • Weebilly1
    Re: Travel Concessions for Over 60s
    I'm am on my pension I'm 67 years old and can i get a train ticket for a year
    12 September 2020
  • Trish
    Re: Clubs to Join in Retirement
    I am a young at heart 81 year old, lives in Paignton and wonder whether there is anyone out there who would like some occasional…
    11 September 2020