Inheritance Tax

What is inheritance tax?

In the 2014 budget, George Osborne announced that the government will consult on extending an Inheritance Tax (IHT) exemption for members of the armed forces whose death is caused or hastened by injury while on active service to members of the emergency services.In last year’s budget the government announced that they would extend the freeze of the IHT threshold at £325,000 until 2017-18.

So what is IHT ?

When you die, the Government assesses how much your estate is worth. This includes the cash, investments, any property or business you own, vehicles and life insurance policies.  Your debts are then deducted from these assets to give the value of your estate. There are some complex rules around IHT but, in summary,if the value of your estate exceeds the inheritance tax threshold, you (or rather your estate) will pay tax at 40% on the amount over and above the threshold when you die. This is reduced to 36% if you leave at least 10% to a charity.

If you are married or in a civil partnership, in most cases upon, your death, any assets left to your spouse or registered civil partner, are exempt from inheritance. If you leave everything to your partner the allowance is doubled on the second death, meaning that together a couple can currently leave £650,000 tax-free.

There are a number of measures that you can take to reduce the burden of inheritance tax. Sadly many families do not benefit from these measures because relatives are reluctant to discuss the topic in case they are seen as ‘grasping’ or insensitive.

One solution to reduce tax is simply to give money away! Money gifted before you die is still usually counted as part of your estate, and will be subject to inheritance tax if you die within seven years of giving the gift.  However the first £3,000 you give away in each tax year will not form part your estate and will not be subject to inheritance tax. Gifts to charities and political parties are inheritance tax-free. Also gifts of up to £250 to any one person per tax year are excluded.

So it may be a delicate topic, but it’s worth taking some advice. Who would you like to benefit? Your family. or the taxman?

Contact Desmond Saunders for details on 01827 317075 or email dsaunders@pickerings-solicitors.com.