Inheritance Tax

Inheritance tax is calculated based on a threshold that can change. Currently, for the years 2020 to 2021, the threshold for inheritance tax is £325,000. This figure is also called the nil rate band. If an estate is worth more than £325,000, inheritance tax will need to be paid.

How do I know how much inheritance tax I need to pay?

Generally, inheritance tax is 40% of any value above the nil rate band currently standing at £325,000. If more than 10% of the net estate is donated to charity in a will, inheritance tax can be reduced from 40% to 36%.

Is the inheritance tax threshold different for married couples?

Yes. If someone dies and leaves their inheritance to their spouse or civil partner, their partner will not need to pay any inheritance tax, regardless of the value of the estate. When the second partner dies, they will then also inherit their spouse’s unused inheritance tax threshold, increasing their own threshold from £325,000 to £650,000.

Can you avoid paying inheritance tax?

As well as leaving inheritance to a spouse or civil partner and donating to charity, to avoid paying as much inheritance tax, you could also consider leaving property to your children. If you are a homeowner and you leave property to your children, step-children or grandchildren, £175,000 is added to your inheritance tax allowance, giving you a total inheritance tax allowance of £500,000.

A deed of variation can help you to ensure the will you are dealing with is as tax efficient as possible.

Who is responsible for paying inheritance tax?

When a will is involved, the executor will be charged with paying the inheritance tax bill out of the estate they have inherited either from existing money or from selling assets.

If there is no will, payment will be arranged by the administrator.

When is inheritance tax due?

Aim to pay inheritance tax as soon as possible. If inheritance tax has not been paid six months after someone has passed away, you will be charged interest and could be sent late payment penalties which can go up to £3,000.

We are aware that the process of applying for probate and managing assets can be daunting at a very emotional time, and that is why we are always on hand to offer our clients advice and guidance.

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