An Overview of the
Inheritance Tax

Inheritance tax is the tax that is paid on your 'estate' when you pass away. Broadly speaking, your estate includes everything that you own at the time of your death, less your liabilities.

Sometimes the inheritance tax is also payable on assets that you have given away during your lifetime. These assets include things like property, possessions, money, and investments.

Not everyone pays an inheritance tax upon death. It applies only if the taxable value of your estate when you die is greater than £300,000 (for the 2007-2008 tax years). The inheritance tax is payable only on the amount exceeding this threshold, but it is payable at a whopping 40%.

Reducing Your Inheritance Tax Liability by Using Exempt Transfers (ET)

You are entitled by HM Revenues to a number of exemptions, which allow you to transfer assets to other people (during your lifetime or in your will) without having to pay any inheritance tax. For example:

• If your estate passes to your husband, wife, or civil partner and you are both domiciled in the UK, there is no inheritance tax to pay (even if the value of your estate is greater than the £300,000 threshold).

• Most gifts that were made more than seven years before your death are also exempt from the inheritance tax.

• Certain other gifts, such as wedding gifts, gifts in anticipation of a civil partnership up to £5,000 (depending on the relationship between the giver and the recipient), gifts to charity, and £3,000 given away each year are also exempt from the inheritance tax.

There are other possible exemptions, but you need to check with your accountant for detail.

Who Pays the Inheritance Tax?

The 'personal representative' (the person nominated to handle the affairs of the deceased) arranges to pay any applicable inheritance tax.

You usually identify the personal representative in your will (you can nominate more than one), in which case he or she is known as the 'executor'. If you die without leaving a will, a court can name the personal representative, in which case he or she is known as the 'administrator'.

There is a deadline for paying the inheritance tax. It must be paid within six months of the last day of the month in which the death occurs. Otherwise, interest is charged on the amount that is owed. However, tax on some assets, including land and buildings, can be deferred and paid in instalments over ten years.

I recommend that you make a will as soon as possible. Arranging your finances in advance helps to ensure that, when you die, everything you own is distributed according to your wishes. This can help you provide a sound financial future for your family.

Making a will is the first step in ensuring that your estate is shared among your loved ones exactly as you want it to be. If you don't have a will, there are legal rules for sharing your estate. These rules are states in the Law of Intestacy. Not having a will could mean that your money goes to family members who may not need it, while your partner receives nothing at all.

If you leave everything to your spouse or civil partner, there won’t be any inheritance tax to pay, because your spouse of civil partner is classified as an exempt beneficiary.

But hey… why we talking about death? I hate talking about death. Let’s get back to my favourite subject of how to make money from property investments!

HMRC Inheritance Tax (IHT) (opens new window)

Return from Inheritance Tax to Property Tax

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