Understanding Inheritance Tax in the UK
Inheritance tax (IHT) is a levy paid on the estate of someone who has passed away, including their property, money, and possessions. While it may not affect everyone, understanding how it works could save your family thousands.
Who Pays Inheritance Tax?
Currently, the standard inheritance tax rate is 40%, but this only applies to estates valued above £325,000. Married couples and civil partners can combine their thresholds, potentially allowing up to £1 million tax-free when including the residence nil-rate band.
Key Exemptions and Reliefs
- Spousal exemption: Transfers between spouses or civil partners are generally tax-free
- Annual gift allowance: You can give away £3,000 each tax year without it being added to your estate
- Small gifts: Gifts of up to £250 per person are exempt
- Business relief: Some business assets may qualify for 50% or 100% relief
Planning Ahead to Reduce Your Tax Bill
With careful planning, families can significantly reduce their inheritance tax liability. Options include:
- Making gifts more than seven years before death
- Setting up trusts for beneficiaries
- Investing in assets that qualify for business relief
- Taking out life insurance policies written in trust
The Rising Impact of Inheritance Tax
With property values increasing and tax thresholds frozen until at least 2028, more families are finding themselves caught in the inheritance tax net. Experts recommend reviewing your estate plan regularly to ensure you're making the most of available reliefs and exemptions.
