The tax that is charged on the property, money, and possessions of a person who died is called inheritance tax. And this tax will be paid from the death estate to HMRC by the trustee of the estate or representative.
Inheritance Tax Threshold:
No inheritance tax will be charged on the amount of the death estate that is below £325,000.
Exempt amount other than Threshold:
The deceased person left the property, money or other possessions for spouse or civil partner or for charity above the threshold amount of £325,000 are tax-free.
The threshold of Inheritance Tax can be increased to £900,000:
- Individuals threshold can increase from £325,000 to £450,000 by leaving home to their children or adopted child or grandchildren.
- This threshold can further increase to £900,000 when spouses or civil partner`s death estate value is less than the threshold. Any unused threshold can be transferred to the deceased`s partner death estate.
Rates of Inheritance Tax:
- 40% tax will be charged on the death estate after the deduction of threshold and other exemptions.
- This rate will reduce to 36% on few if an individual left 10% of its death estate to charity.
Reliefs on Inheritance Tax:
- 7 Years Rule:
When an individual gives away the home to a spouse or civil partner in his/her life and survived 7 years after this transfer than no inheritance tax will arise on death.
Whereas if individual die within 7 years after the transfer this will treat as gift and tax will be calculated according to it.
Exemption on transfer made during lifetime:
- Annual exemption of £3,000 is available and any unused annual exemption of previous can carry
- Gifts amount of £250 or less are exempted
- Gifts received on marriage are exempted that includes
- Up to £5,000 from Parent are exempted.
- Up to £2,500 from remote families or from spouse family
- Up to £1,000 from random people are exempted.
- Receiving of daily expense for a living are also exempted.
Transfer during lifetime or after death:
Any transfer to spouse or civil partner is exempt during lifetime or after death.
Other Reliefs on Inheritance Tax:
- Fall in Value Relief:
- Relief on business property transfer
- Relief on Agricultural property transfer
The payment schedule for IHT:
|Transfers||Who will Pay TAX||Due Date
|Chargeable Lifetime Transfer Lifetime-Tax||The donor will pay tax until unless the receiver agreed to pay
30 April after the tax years’ end.
6 months after the month of transfer
|Chargeable Lifetime Transfer Lifetime-Tax||The trustee will pay the tax||6 months after the month of donor`s death
|Potential exempt Transfer||The receiver will pay the tax||6 months after the month of donor`s death
|Death Estate||The trustee or personal representative will pay the tax||Earlier of
Delivery of accounts
6 months after the month of donor`s death