Inheritance Tax
Death and taxes, so it is said, are the two inevitabilities in life. It is an unfortunate reality that for many people, the two go hand in hand.
Traditionally Inheritance Tax was a tax on the wealthiest people in society. In recent years house prices have soared and general wealth has increased, however the tax-free allowance for individuals has not and a vast number of people now find their estate faced with a large Inheritance Tax bill on death.
The Government has gone some way to rectifying this situation stating in October 2007 that married couples and civil partners will be able, in effect, to double their individual tax-free allowance on the death of the survivor. They have not, contrary to media reports and general perception, doubled the tax-free allowance for an individual. This is currently £325,000.
If you are an individual or an unmarried couple with assets over the tax free allowance your Estate could pay 40% tax on the value of your Estate above this figure.
The decline of the Nil Rate Band Discretionary Trust
Prior to the 2008 Finance Act many people created Discretionary Trusts in their Wills to mitigate Inheritance Tax liability. The effect of the changes in law is that these Trusts are now, in some circumstances, no longer required and could put the family in a worse financial position.
If you have made a Will to take advantage of the Nil Rate Band Discretionary Trust you should seek advice as to whether it is still appropriate for your circumstances.
We are happy to talk through the options with you.
Frequently Asked Questions
- What is Inheritance Tax?
Inheritance Tax is, subject to some exclusions, a tax payable on the value of any assets in excess of a person’s tax free allowance on death. It is charged at 40%.
- What is the "Nil-rate Band"
Everybody has an individual tax free allowance called their nil-rate band. For the year 2009/10 this is £325,000.
- If I leave all my assets to my spouse or civil partner upon my death, will they have to pay inheritance tax if the value is greater than the nil-rate band?
No. Any gifts made to your spouse or civil partner are entirely free of inheritance tax.
- Are there any other gifts which do not attract inheritance tax?
Yes, the most common being:
- Lifetime gifts with a total value of no more than £3,000, in any one tax year.
- Gifts on marriage (although the limit varies depending on your relationship to the person receiving the gift)
- Gifts made to others in your lifetime provided you do not continue to benefit from the item gifted and you survive the period of 7 years after making the gift
- Gifts to charities
- What is Inheritance Tax?
Inheritance Tax is, subject to some exclusions, a tax payable on the value of any assets in excess of a person’s tax free allowance on death. It is charged at 40%.
- What is the "Nil-rate Band"?
Everybody has an individual tax free allowance called their nil-rate band. For the year 2009/10 this is £325,000.
- If I leave all my assets to my spouse or civil partner upon my death, will they have to pay inheritance tax if the value is greater than the nil-rate band?
No. Any gifts made to your spouse or civil partner are entirely free of inheritance tax.
- Are there any other gifts which do not attract inheritance tax?
Yes, the most common being:
- Lifetime gifts with a total value of no more than £3,000, in any one tax year
- Gifts on marriage (although the limit varies depending on your relationship to the person receiving the gift)
- Gifts made to others in your lifetime provided you do not continue to benefit from the item gifted and you survive the period of 7 years after making the gift
- Gifts to charities
The Probate Team
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