Inheritance tax is a tax paid on the value of assets which are passed from one person to another upon death.
The value of those assets is determined as being a person's estate, including:
- everything owned in their name i.e. property, money, savings and the value of investments;
- the share of anything owned jointly; and
- certain gifts made in the previous seven years.
Against this total value is set everything that the deceased person owed, such as any outstanding mortgages or loans, unpaid bills and other sums due, as well as funeral expenses.
Under the current tax rules any assets passing to a spouse, registered civil partner or to charity on death are free of inheritance tax. An individual can also leave assets worth up to £325,000 to someone who is not a spouse, civil partner or charity without an inheritance tax liability. The value of assets passing to someone who is not a spouse, civil partner or charity over £325,000 will be subject to inheritance tax at the rate of 40%.
The portion of £325,000 which can pass to a non spouse tax free is known as the nil rate band.
Reducing your inheritance tax liability
There are a number of steps you can take to mitigate or reduce your potential inheritance tax liability, including:
- Have an up to date will which has been written correctly to ensure those who you wish to benefit do so;
- Transfer assets through prudent use of lifetime gifts; and
- Establish a trust in your will which will come into effect when the first one of a couple dies.
Our experienced inheritance tax lawyers can review your circumstances with you and advise you on the most appropriate steps to take to reduce your inheritance tax liability. We can help you put in place an effective will that specifically meets your requirements as well as setting up any arrangements that may be advisable to protect your assets and to mitigate any potential inheritance tax liability.