As the old joke goes, the only two certainties in life are death and taxes. Inheritance tax is the tax taken out of a deceased person’s estate before the remainder is passed on to their heirs. The way IHT currently works is that transfers between spouses/civil partners are excluded from the calculation of the value of the estate for IHT. They are also made free of tax.
For assets not left to a spouse/civil partner, there is a default threshold under which tax is not charged. This is currently £325K. Above this, tax is charged at a flat rate, currently 40%.
There are however some exceptions to this, one of which could be extremely important.
If you own a residential property your tax-free allowance is increased to £500K provided that:
you leave it to your children (including adopted, foster or stepchildren) or grandchildren
your estate is worth less than £2 million
There are some other exemptions (for example donations to charity are excluded from the taxable value of your estate) and possible exemptions (for example qualifying gifts are also excluded). How useful these will be will, of course, depend on a person’s individual situation.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
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