What is Inheritance Tax?
The Inheritance Tax (IHT) is a tax on the value of a property and other assets that are left to someone when someone dies. It is a progressive tax, which means that the rate of tax increases as the value of the estate increases.
Who Pays Inheritance Tax?
Inheritance tax is paid by the estate of the person who has died. This means that the tax is paid from the assets in the estate, not by the person who inherits the assets.
What is the Inheritance Tax Threshold?
The inheritance tax threshold is the amount of money that can be left to someone without them having to pay the inheritance tax. In the 2022/23 tax year, the inheritance tax threshold is £325,000 source. This means that if someone dies and leaves an estate worth less than £325,000, their estate will not be liable for inheritance tax.
What are the Inheritance Tax Rates?
The inheritance tax rates are:
- 40% on the value of the estate above £325,000 for people who are not married or in a civil partnership
- 36% on the value of the estate above £325,000 for married couples and civil partners
What are the Inheritance Tax Exemptions?
There are a number of exemptions from inheritance tax. These include:
- Gifts made more than seven years before the person dies
- Gifts to charities
- Gifts to certain trusts
- The family home, up to a certain value
How to Reduce Inheritance Tax
There are a number of ways to reduce inheritance tax. These include:
- Making gifts
- Using trusts
- Taking out life insurance
Inheritance Tax Planning
It is important to plan for inheritance tax. This can help to reduce the amount of tax that is paid and ensure that the assets are passed on in the way that the person who has died would have wanted.
Inheritance Tax Advice
If you are concerned about inheritance tax, you should seek professional advice. A financial adviser can help you to understand the rules and make plans to reduce the amount of tax that is paid.
Here are some additional figures and numbers related to Inheritance Tax in the UK:
- The total amount of inheritance tax collected in the UK in 2020/21 was £5.4 billion.
- The average inheritance tax bill in the UK is £27,000.
- The most common way to reduce inheritance tax is to make gifts. In 2020/21, £2.4 billion of inheritance tax was saved through gift giving.
- The most common type of trust used to reduce inheritance tax is the discretionary trust. In 2020/21, £1.5 billion of inheritance tax was saved through the use of discretionary trusts.
- The most common type of life insurance policy used to reduce inheritance tax is the whole of life policy. In 2020/21, £1.1 billion of inheritance tax was saved through the use of whole of life policies.
