Inheritance Tax (IHT) is the amount of tax payable by the estate of a deceased person.
The estate is made up of all the deceased’s assets: house, car, savings and investments, cash, jewellery and so on. The liabilities, such as mortgage, credit card debt, loans, outstanding utility bills, are deducted from the assets. This is the total value of estate for IHT purposes.
The first £325,000 of the estate will pass tax free. This amount is called the Nil Rate Band. The remainder of the estate is taxed at 40%.
How can you reduce the IHT liability on your estate?
Gifts to charity are exempt from IHT. These gifts are deducted from the estate value before the Nil Rate Band is calculated, so reducing the overall amount which may be liabile for IHT.
All gifts to a spouse are exempt from IHT. If you leave your whole estate to your spouse there will be no IHT due, and your spouse will inherit your Nil Rate Band too. This means that, when they die, their estate will have a Nil Rate Band of £650,000.
There are other ways to reduce your IHT liability, and it’s a good idea to discuss them before writing or updating your Will. Call or email us to book an appointment to discuss your estate planning, or drop in to our next monthly Saturday Advice Clinic.