Inheritance tax (IHT) is regarded as one of the most loathed of taxes. At a flat rate of 40% on everything owned by the deceased, at the date of death in excess of the nil rate band, IHT can be a sizeable bill.
This nil rate band is currently £325,000 (2014/15) or £650,000 for a married couple and will be frozen until at least 2017/18.
Inheritance tax also applies to gifts and other transfers made by the deceased in the 7 years prior to death.
Certain assets and transactions are exempt from inheritance tax, notably gifts of any assets to the spouse and to charities and political parties.
Business assets may also attract business property relief at the rate of 100% or 50%.
Take Advantage of Lifetime Exemptions
The following transfers during a taxpayer’s lifetime are exempt from inheritance tax:
- Annual exemption £3,000 (can be carried forward one year if unused)
- Small gifts exemption £250 per donee per annum
- Gifts to UK domiciled spouse
- Gifts to political parties and charities
- Normal expenditure out of income
- Gifts for Family Maintenance etc.
- Gifts in consideration of marriage
- Check Wills are up to date. As family and assets change, it’s important to ensure Wills reflect these changes.
- Document everything. If you give away a gift in respect of a wedding or a regular gift out of normal expenditure, HMRC will expect to see paperwork to support this.
- IHT planning rules can be complex, so seek advice to ensure the steps you take are as tax efficient as possible.