Everything you need to know about inheritance tax
Guest post by Chelsea Ellsworth
When someone dies, as well as it being a very sad and difficult time, there are a lot of formalities that need to be dealt with too. Someone will need to register the death, arrange the funeral and then figure out whether or not the person who passed away has left a will.
If they have and there’s an executor, or they haven’t and there needs to be an administrator, this person will be responsible for settling the estate, paying any Inheritance Tax and distributing everything that’s left. But what exactly is Inheritance Tax? Here’s our simple guide to understanding it a bit better.
What is Inheritance Tax?
Simply put, Inheritance Tax is a tax paid on the estate of a person who’s died. And the estate, in case you didn’t know, is the collective name for everything that person owned, from their property and possessions to all their money, savings and shares.
Does everyone pay Inheritance Tax?
No, not everyone has to pay Inheritance Tax. Currently, there normally doesn’t have to be any tax paid if the overall value of the estate is less than £325,000 threshold. There’s also no need to pay any Inheritance Tax if everything above the threshold is left either to the person’s husband or wife, civil partner, a charity or a community amateur sports club.
If the person who’s died has chosen to give their home away to their children, then the Inheritance Tax threshold can increase to £450,000.
It’s also worth noting that if the deceased person’s estate is worth less than the threshold and they’re married or have a civil partner, then any unused threshold can be added to the remaining partner’s threshold when they die.
What are the rates on inheritance tax?
The usual Inheritance Tax rate is 40%. But that’s only 40% on the amount that goes over the £325,000 threshold. For example, if the deceased person’s estate is worth £400,000, then they’ll pay 40% Inheritance Tax on the £75,000 that takes them over the threshold. The initial £325,000 is tax-free.
How can you figure everything out?
If you’re the executor or the administrator dealing with someone’s estate, it can all get a bit tricky and overwhelming at times. There are many rules and exemptions when it comes to Inheritance Tax, such as whether or not the person has gifted anything of value before they died which the receiver will need to pay tax on, or whether or not the beneficiaries have any tax to pay later.
Rather than trying to figure everything out for yourself, it can sometimes be preferable and advisable to enlist the help of a professional, such as a probate and estate administration service from Beyond. They’ll be able to guide you through every step of the way and take care of all the hard work for you, making the whole process as smooth and stress-free as possible.