Inheritance Tax or “death tax” is the tax that is paid on your 'estate'. Essentially, this is everything you own at the time of your death, less your debts. It also includes some assets you may have given away during your lifetime including property, possessions, cash and investments for example.
The good news is that if the taxable value of your estate is less than £300,000 when you die, you will not be liable to any inheritance tax (IHT). That’s the only good news! Every £ in excess of £300,000 is charged at 40%.
There are however a number of ways of reducing your inheritance tax liability as well as some exemptions which allow you to pass on amounts (during your lifetime or in your will) without any Inheritance Tax being due, for example:
if your estate passes to your husband, wife or civil partner and you both live in the UK
if you give away assets more than 7 years before you die
if you make gifts to charities and political parties (yes really!!)
The government has cracked down on more complex tax-avoidance schemes and some Trusts now attract inheritance tax, so you should get professional help before you make any decisions.
More on “How to avoid paying inheritance tax”
The simplest way to avoid inheritance tax (IHT) is to make gifts while you are still alive. For example:
1. Each and every tax year you can give away £3,000 of assets and they will not count towards your estate for IHT purposes. If you do not use up the full exemption in one year you can carry it forward, but only for one year.
2. You can also give away gifts of up to £250 to an unlimited number of different individuals with some exceptions.
3. You could give £5,000 to your children as a wedding gift.
4. Gifts between husbands and wives are always IHT-free, as are donations to charities and political parties.
You can make other tax-free gifts as long as you survive for another seven years. If you die within seven years and the total value of your gifts is more than £300,000, taper relief can apply to any tax you owe.
In life, only two things are for certain – taxes and death. IHT nicely captures those two certainties. Although political parties are looking at IHT as a political vote winner, this tax is here to stay for the forseeable future. Always speak to a good financial advisor when planning IHT matters.
Find out more about taxation and inheritance issues with Finance 4 Expats.
Source: http://www.ArticlePros.com/author.php?Dave Thair
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