Inheritance Tax Explained
Among all the tax obligations that a person has during their life, this one is the most difficult to consider and prepare for. Inheritance tax is the tax that you pay when your estate is inherited by your family or by those to whom you’ve left it.
It’s a rather steep tax, and you might put your family into a sticky situation by letting them deal with this without preparation. However, there are also large allowances and exceptions for inheriting the property you live in.
When you don’t pay
Will you pay an inheritance tax? It depends on how much you have to pass on and to whom you’re passing it on. If you’re leaving all of your estates to your spouse or civil partner,r there will be no tax regardless of how much you’re leaving. The same goes if you’re leaving the estate to a charitable organization or an amateur sports club.
When your inheritor is someone else than your spouse, it depends on how much you’re leaving to them. If the amount is less than £325.00, there’s no tax, and you start paying the tax after that amount. In practice, it’s paid by those who inherit you.
The estate is the sum of the items that you own. These include money, investments, property, and intellectual property. It also includes the debts you have in your name and that your inheritors will have to pay. This seems like an ordinary statement, but something often gets left out in the planning of things, especially if you have a complicated financial situation.
HMRC will estimate the value of the estate in a process called the probate. Some of it is easy since they can count the money you have on your account. Other issues aren’t that easy for the value of the home and the artwork, for instance.
When people hear the tax rates, they usually think that it’s too high for a tax. This is true, but it also comes about only for those who have a rather valuable estate altogether. The tax starts if your estate is worth more than £325.000.
The rate for those who own more than that, meaning those who have inherited more than that,t is set at 40 percent. There’s an additional allowance for those who have left their home to their children, and it’s worth more than £3250.000. For them, the allowance is £475.000.
Who pays it?
The tax is paid by those who have inherited the money. However, that’s sometimes simple and easy to organize – if one person is inheriting the money. In other cases, when there are many inheritors, things get more complicated.
This is resolved with the institution of executor. That’s the person whose job is to execute the will to gather all of those who get the estate portion and pay the taxes and the fees.
Taxes on home
There are ways to avoid paying this tax on the transfer of the home, but it requires some planning and organization, as well as some extra funds at your disposal. That’s done by passing on your home before you die instead of doing it in a will.
In this case, the rules state that it needs to be done 7 years before your passing. This obviously isn’t something you can plan for, but there are ways. For instance, moving to a retirement home could be a time to transfer your main property.
When you’re a resident outside the UK
Additional rules apply for those who residents of a foreign country and citizens of the UK at the same time. If they pass away abroad, it’s these rules that apply. In these cases, the UK tax is only paid on the assets that are based in the UK.
Another set of rules is applied for the soldiers who die abroad if they’ve died in the country’s service. There’s also an HMRC office you can call and ask about this tax’s details if it’s for a person who lived abroad.
Inheritance tax is the tax that’s paid on the estate you live to your family or friends. This tax has a rather high allowance and additional allowance for those who leave their home to their spouse. It also has rather high rates for the estate worth above that amount.
There are also additional rules for those who live abroad and for soldiers. It’s also important that you try to minimize the value of your estate by passing on the church while you’re still alive, and there is a set of rules on how to do that as well.