Inheritance tax is a tax which is most commonly paid by the estate of someone who has died.
It is the executor’s duty to determine the size of a deceased person’s estate and to work out if inheritance tax is payable. There are strict rules on valuing an estate and an inheritance tax return will need to be submitted to HM Revenue & Customs.
Every individual can leave assets, up to the value of the nil rate band, free from inheritance tax when they die. The nil rate band is currently £325,000. Everything above the nil rate band is usually taxed at 40%.
In certain circumstances, it is possible to claim an additional £175,000 residence allowance exemption from inheritance tax. This allowance is on top of the nil rate band and relates only to your home. To be eligible you must gift your home in your will to your descendants. Provided certain conditions are met, this exemption provides an additional allowance to be used to reduce the inheritance tax payable on your home. Given the complex rules on this relief, it is vital you take advice to ensure you maximise your chances of obtaining it.
Given the high rate of inheritance tax, it is important to value the estate carefully and to complete the inheritance tax return with caution. Failure to complete the tax return properly could result in tax penalties and interest becoming payable.
If you are an executor, contact us for a free quote to assist you through this process. To find out more about your responsibilities click here.
If your estate exceeds the nil rate band it is important you take advice. There are various steps you can take to avoid paying unnecessary inheritance tax on death, and planning ahead is key if you want to prevent your estate from being depleted by death duties.
For more information on the steps you can take and how we can help you limit your inheritance tax liabilities, click here.
If you want more information about inheritance tax, speak to a member of our specialist inheritance tax team today.