Inheritance Tax. Are You Up To Date?

Inheritance tax is better known as ‘Death Tax’ and is simply a tax on money or possessions that you leave when you die and also some gifts you make during your lifetime.

However, it is not all doom and gloom, each person has a tax free allowance which is currently fixed by the budget for until 2014 at £325,000. This is known as your ‘Nil Rate Band’. On top of your nil rate band allowance on death, you can also make gifts during your lifetime and under your Will which are tax free as follows:

1. Gifts between a husband and wife or civil partners who are both domiciled in the UK

2. Gifts to UK-established charities, national museums, universities, the National Trust and certain other bodies

3. Most gifts to people made more than seven years before your death

4. Gifts made as part of your ‘normal expenditure’

5. Gifts to people getting married - £5,000 from each parent of the couple; £2,500 from each grandparent or more remote relative; £2,500 from bridegroom to bride (and vice versa) and between civil partners; £1,000 from anyone else.

6. Any number of gifts up to £250 to each recipient – such as birthday and Christmas presents.

7. Gifts for maintenance – this can be for the husband, wife or civil partner, ex-husband, ex-wife or ex-civil partner and relatives dependent on you through old age or infirmity. Also it can be for maintenance, education or training of your children (including step and adopted children) in full-time education or aged 18 or under.

8. Gifts up to £3,000 in total in each tax year - You cannot combine these with a £250 gift to the same person. Husbands, wives and civil partners each have £3,000 limit. You can carry any unused part forward one year only, to the next year. This gift is known as the ‘annual exemption’.

If you are single when you die, and your estate is worth more than your Nil rate Band Allowance after deductions of debts and expenses, you will be taxed at 40% on anything above your Nil Rate Band Allowance. For example, if you were to leave behind an estate worth £500,000 in the year 2010 to 2011, you will be taxed at 40% on the value of £175,000 and therefore would have a tax bill of £70,000.

If you are a Married couple and Civil Partners, the law allows you to pass your possessions and assets to each other free from inheritance tax. The new laws passed in June 2007 now allows you to also use both Nil Rate Band allowances as it has been unused on the death of the first Spouse/Partner.   

Inheritance tax is due on money and possessions passed when you die and is paid from the estate. Your estate is made up of everything you own, less debts and expenses. The only exception to this rule is where non exempt gifts have been made in the last seven years before death and therefore the person or persons receiving the gift will be liable to pay the inheritance tax due.   

We hope that the above information has been of assistance to you. At Winters Legal LLP we understand the difficulties associated with tax implications of death, such as probate and we are able to provide expert legal advice and assistance in a way which is most appropriate to your needs.

Sarah Jane Featherstone is a Partner at Winters Legal Solicitors in St Ives, Cambridgeshire www.winterslegal.co.uk  She can be contacted on 01480 377377 or by email at SJ.Featherstone@winterslegal.co.uk