It is easy to underestimate how complex the UK tax system is. If, you hear the word ‘tax’ and automatically associate the word with complicated figures and accountancy terminology, you’re not alone. According to research earlier this year by International Longevity Centre UK, many people approaching retirement are confused by tax terminology.
Some of our clients find the concept and working of inheritance tax confusing. We are often asked when this tax applies and how it works.
Below are some examples of common questions and answers. These do not cover every eventuality and you are more than welcome to contact a member of our team who will happily discuss your particular inheritance tax position with you.
What is inheritance tax?
Inheritance tax is currently charged at 0% on the first £325,000 of a person’s estate (the Nil Rate Band) and at a rate of 40% on any surplus. The £325,000 Nil Rate Band has been frozen until at least 2020/21.
What counts as an estate?
This will include cash in the bank, investments, property or business you own, any vehicles and some pay-outs from life insurance. You should note that assets which you enjoy but which are held in trust and gifts you have made in recent years may also sometimes be part of the calculation of your inheritance tax liability.
My estate is worth £325,000 plus, how do I calculate tax?
It’s important to remember that inheritance tax is charged at 0% on the first £325,000; therefore tax is not paid on this amount. Anything above this, bears tax at 40%. For example, if your entire estate is worth £1,000,000, you will be taxed on £675,000 (your estate value minus the £325,000 Nil Rate Band) at a rate of 40%.
Are there any exemptions or reliefs?
There are many exemptions and reliefs . Some of the most common apply to gifts to spouses or civil partners, and gifts to charities. Some assets also qualify for reliefs such as some Business Property and some Agricultural Property. If you work or have worked within the armed forces, police force , fire service, paramedic service or supplying humanitarian aid and die in active service, or as a result of an illnesss or injury caused by such work then your estate may be exempt from paying inheritance tax.
Here at Preston Redman Solicitors, we understand that your financial affairs and the distribution of your estate on your death are both confidential and sensitive.
To speak to a member of our wills probate, trust and tax team call us on 01202 292 424 or email us on ptbs@prestonredman.co.uk