Inheritance Tax
The principles of calculating Inheritance Tax are quite straightforward (the details are slightly simplified here) - the problems can come with doing it in practice.
- Add up the gross value of the estate (everything in sole name, the share of things in joint names, major gifts given away in the last 7 years, anything given away but which the donor still benefited from )
- Take away any debts (this can include the funeral, but not other estate administration expenses)
- Take away any exemptions (anything going to legal spouse, anything to charity)
- Take away ‘relieved’ assets (e.g. qualifying family business, or a working farm)
For what is left, up to the IHT-free limit (the Nil Rate Band) is taxed at 0% but the excess is taxed at 40% Today the NRB is £325,000, so leaving £326,000 produces an IHT bill of £400. By careful planning even those with an apparent IHT problem may be able to reduce or even eliminate their family’s future tax bill. However, your Will writer will need to look at this carefully with you.
The new IHT rules bring in the ‘Transferable NRB’, which might mean that couples can leave everything to each other yet still exploit both NRBs when the family eventually inherit.
In the past the Nil Rate Band limit has been increased in virtually each year. However, the Budget of March 2010 has announced a freeze of the limit for the next few years, at £325,000 - although any future chancellor is still free to change that.
Inheritance Tax
a tax on your family at 40%.
