What is Inheritance Tax (IHT)?
It was once called death tax but that was somewhat morbid so it is now known as Inheritance Tax (IHT) and is a tax paid on your estate when you die. Your "estate" is, basically, all of your assets less any outstanding debts or payments. It is also sometimes payable on assets you may have given away during your lifetime. Assets include things like property, possessions, money and investments.
Inheritance Tax law, as with most tax law, can be complicated. Therefore, if you have particular issues regarding Inheritance Tax it is strongly advised that you consult with an Independent Financial Advier and/or tax consultant.
If you wish to clarify certain points for yourself we suggest you visit: www.direct.gov.uk
Who Pays Inheritance Tax?
Inheritance tax is paid on death and, for the 2008-2009 tax year, applies if the taxable value of your estate including any jointly owned assets and assets held in certain types of trusts exceed £312,000 when you die. It is only payable on the excess above the £312,000, anything below this is known as the nil rate band.
It is also possible to pass on certain amounts during your lifetime or in your will that are tax exempt, these include:
| | • if your estate passes to your husband, wife or civil partner and you are both domiciled in the UK there is no Inheritance Tax to pay even if it's above the £312,000 nil rate band
• most gifts made more than seven years before your death are exempt (but see the next section on trusts and companies)
• certain other gifts, such as wedding gifts and gifts in anticipation of a civil partnership up to £5,000 (depending on the relationship between the giver and the recipient), gifts to charity, and £3,000 given away each year are also exempt
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Who Actually Pays the Inheritance Tax?
When you make a will you usually nominate one or more executors, these are individuals who will look after your affairs after your death. It is part of their responsibility to arrange payment for any Inheritance Tax that is due.
If you die without leaving a will a court can nominate the personal representative, in which case they are known as the 'administrator'.
When Must Inheritance Tax be Paid?
Normally, Inheritance Tax must be paid within six months from the end of the month in which the death occurs, otherwise interest is charged on the amount owing.
Tax on some assets, including land and buildings, can be deferred and paid in instalments over 10 years.
What are the Current Inheritance Tax Rates?
The good news is, there is currently only one rate. The bad news is, it is 40% on all taxable assets over £312,000.
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