personal finance

Most Popular Inheritance Tax Questions asked Online

Most Popular Inheritance Tax Questions asked Online

When someone dies and leaves you something in their will, the last thing you want to be worrying about is how much inheritance tax you might have to pay on it. But new research by tax experts Income-Tax has found that this is the most-asked Inheritance Tax question people ask online.

Like most taxes, Inheritance Tax can be tricky to understand, so it’s no wonder so many people are asking numerous questions about it. Some of these are about who has to pay Inheritance Tax, while others are about Inheritance Tax rules in other countries.

If you inherit money, you won’t be the only one who has questions like how much tax you’ll have to pay, when you have to pay it and where the money comes from. In this article, we’ll reveal the top ten most googled Inheritance Tax questions and give answers to these questions, so you can have a better understanding of this complex topic.

The five most googled Inheritance Tax questions are: “How much is Inheritance Tax?”, “What is Inheritance Tax?”, “How to avoid Inheritance Tax”, and “What is the Inheritance Tax threshold?” and “When do you pay Inheritance Tax?”.

These are followed by: “Who pays Inheritance Tax?”, “Does Norway have Inheritance Tax?”, “How does Inheritance Tax work?”, “What is the 7-year rule in Inheritance Tax?” and “Do you pay capital gains tax on inherited property?”.

Read on to find out the answers to these popular Inheritance Tax questions. 

Top 10 Most Googled Inheritance Tax Questions

1. How Much is Inheritance Tax?

The standard Inheritance Tax rate is currently 40 per cent. This means the amount of Inheritance Tax paid depends on the value of the inheritance.

If you leave ten per cent or more of your estate’s net value to charity, Inheritance Tax can be charged at a reduced rate of 34 per cent.

Usually, there won’t be any Inheritance Tax to pay if the value of the benefactor’s estate is below the tax-free threshold. You’ll also normally be exempt from paying Inheritance Tax if you leave everything above the threshold to a spouse, civil partner, charity or community amateur sports club.

2. What is Inheritance Tax?

Inheritance Tax is a tax that’s paid on the estate of someone who has died. Their estate includes property, money and possessions.

3. How to Avoid Inheritance Tax

As mentioned above, there usually won’t be any Inheritance Tax to pay if you leave everything above the threshold to a partner, charity or community amateur sports club.

Another way to avoid Inheritance Tax is to give gifts while you’re still alive. If you die within seven years of giving an individual a gift, Inheritance Tax is applied on a sliding scale, known as “taper relief”. Note that taper relief only applies to the tax that a recipient pays on the value of the gift above the threshold.

The tax reduction rates for the seven-year period are as follows:

How long ago the gift was madeTax reduction rate
0-3 years0%
3-4 years20%
4-5 years40%
5-6 years60%
6-7 years80%
7+ years100%

You can also avoid paying Inheritance Tax by increasing your threshold. Your threshold can be increased if you give your home away to your children or grandchildren. Additionally, if your estate is worth less than your threshold and you’re married or in a civil partnership, any unused threshold can be passed onto your partner when you die.

4. What is the Inheritance Tax Threshold?

The Inheritance Tax threshold is currently £325,000. Inheritance Tax is charged at a rate of 40 per cent on anything above this threshold.

If you own your home (or a share in it), your tax-free threshold can be increased to £500,000 if you give it to your children or grandchildren, or your estate is worth less than £2 million.

If you pass on any of your unused threshold to your partner, their threshold can be as much as £1 million.

5. When do You Pay Inheritance Tax?

Inheritance Tax must be paid by the end of the sixth month after the benefactor died.

If you fail to pay by the due date, HM Revenue and Customs (HMRC) will charge interest.

6. Who Pays Inheritance Tax?

Inheritance Tax is paid out of the funds from the deceased’s estate. This is done by the person dealing with the estate, who will be the “executor” if there’s a will.

Normally, the people who inherit the estate (beneficiaries) won’t have to pay tax on the things they inherit. They may, however, be required to pay related taxes. For example, they may have to pay Income Tax on a house that’s left to them in a will.

If a person gives away more than £325,000 and dies within seven years, the people they gave gifts to may have to pay Inheritance Tax. How much depends on when the benefactor dies.

7. Does Norway have Inheritance Tax?

There has been no Inheritance Tax in Norway since 2014. However, if the deceased leaves behind a business or property outside of Norway, Inheritance Tax must be paid in that country.

8. How does Inheritance Tax work?

Inheritance Tax is charged at a rate of 40 per cent on the value of the deceased’s estate that’s above the tax-free threshold. This is normally £325,000.

9. What is the 7-Year Rule in Inheritance Tax?

If you make a gift to an individual that isn’t immediately tax-free, it will only be exempt from Inheritance Tax if you survive for at least seven years after giving the gift. This is known as the “7-year rule”.

If the benefactor dies within seven years, Inheritance Tax may have to be paid, but how much depends on when they die.

10. Do You Pay Capital Gains Tax on Inherited Property?

If you inherit a property, there won’t be any Capital Gains Tax payable on death. If, however, you sell the property without making it your own home, there could be Capital Gains Tax to pay.

What you pay depends on the value of the property when you sell it, compared with how much it was worth on the date of death. If the value has increased, you will have made a taxable gain.

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