When a person dies, their property, money, and possessions may be subject to Inheritance Tax. However, there’s normally no Inheritance Tax to pay if the value of the estate is below the £325,000 threshold. Similarly, if a person leaves everything in their estate above the threshold to their spouse, civil partner, a charity, or a community amateur sports club, then there is normally no Inheritance Tax to pay. While the value of an estate may be below the threshold, it must still be reported to HM Revenue and Customs (HMRC).
Some people may hope to increase their threshold.
This can be achieved if they leave their home to one’s children or grandchildren in their will, if the estate is worth less than £2 million.
This can include adopted, foster, or stepchildren.
By doing this, the threshold can increase to £475,000.
As such, the Inheritance Tax rate would only be payable on the portion of the estate which is greater than £475,000 – rather than above £325,000.
The standard Inheritance Tax rate is 40 per cent, and is only charged on parts of the estate above the threshold.
It may be that the estate can pay Inheritance Tax at a reduced rate of 36 per cent on some assets, if one leaves 10 per cent or more of the “net value” to charity in their will.
Another way to boost the Inheritance Tax threshold can be achieved by those who are married or in a civil partnership.
If one person has an estate which is worth less than the threshold, then upon their death, the unused threshold may be added to the surviving partner’s threshold when they die.
This means that their threshold could amount to a maximum of £950,000.
For a deceased person whose permanent home is abroad, Inheritance Tax is only paid on UK assets.
This may include property or bank accounts they have in the UK, the government website explains.
Gov.uk says: “It’s not paid on ‘excluded assets’ like:
- foreign currency accounts with a bank or the Post Office
- overseas pensions
- holdings in authorised unit trusts and open-ended investment companies.”