How does inheritance tax work?

The dreaded inheritance tax often forms the key component in many tax planning strategies, it is a tax on an estate left to anyone who wasn’t a husband, wife or civil partner of the deceased and is charged at 40% on anything left over after a £325k allowance has been taken into account.

Since 2007 it has also been possible for a widow, widower or civil partner to use the deceased spouses allowance if it went unused after they passed away, this can lead to some estates having tax free inheritances of up to £650k.

Some of the key exclusions to inheritance tax includes gifts given more than seven years prior to death, gifts of up to £3k per year, gifts of less than £250 per individual given at any time as well as reduced tax rates if money was left to a charity in the will.

Inheritance tax was meant to effect private non trading assets and as a result various levels of relief are available for trading businesses in the form of business property relief, this can provide up to 100% relief from tax for the value of the business depending on how the ownership of the asset was structured.

Contact us today with any questions you have around inheritance tax.

Nishi Patel

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