Inheritance Tax

What is inheritance tax?

After one’s death, inheritance tax is paid on their estate. Debts and outstanding bills are deducted from the estate value, and inheritance tax is usually 40% of the remaining estate value, if it’s above the threshold.

When is no inheritance tax due?

There are a couple of circumstances in which payment of inheritance tax is not applicable:

• When the value of estate is below the threshold of £325,000

• Everything above the threshold is left to a spouse or civil partner, a charity, or a community amateur sports club

If you leave your estate to be distributed between children or grandchildren (including foster, adopted or stepchildren), your threshold may be increased.

Why is it recommended to seek legal advice for inheritance tax?

Solicitors can advise you on how to distribute your estate to avoid paying too much inheritance tax. A few examples of this include:

• Giving gifts while you’re still alive (as long as you survive them by seven years)

• Leaving 10% or more of your estate to charity 

• When passing on business

• If you own a woodland or farm

• Creating a trust

The recommended avenues will depend on the size of your estate, and who your chosen beneficiaries are.

Do I pay inheritance tax on an estate I have inherited?

Any tax owed on an estate will be paid before you receive your share. The executor or administrator of the estate will be responsible for paying the inheritance tax bill before distributing the estate.

What if I receive a monetary gift during the donor’s lifetime?

This largely depends on the value of the gift, the value and beneficiaries of the estate, the total amount of money the donor gifted to you and other beneficiaries, and when you received the gift in relation to when the donor passed away.