Inheritance Tax FAQ

What is Inheritance Tax in the UK?

Inheritance Tax (IHT) is a tax that is paid on the estate of someone who has passed away. This includes their property, money, and possessions.

How does Inheritance Tax work in the UK?

Inheritance Tax is calculated as a percentage of the total value of the deceased person's estate above a certain threshold. In the tax year 2023/24, the threshold is £325,000. Anything above this amount is subject to a 40% tax rate.

When does Inheritance Tax in the UK start?

Inheritance Tax is applicable when someone dies and leaves behind an estate that is valued above the threshold of £325,000 in the tax year 2023/24.

What are the ways to reduce Inheritance Tax in the UK?

There are several ways to reduce the amount of Inheritance Tax that needs to be paid, including leaving your estate to your spouse or civil partner, making charitable donations, and setting up trusts.

When should you start thinking about Inheritance Tax in the UK?

It is recommended to start thinking about Inheritance Tax planning as early as possible. This will allow you to take advantage of various tax planning strategies and ensure that your estate is distributed according to your wishes.

Can you give away money before you die to avoid Inheritance Tax in the UK?

Giving away money before you die can reduce the value of your estate and therefore the amount of Inheritance Tax that needs to be paid. However, there are rules around gifting that need to be followed, and the gifts need to be made at least seven years before your death to avoid being taxed.

What is the residence nil-rate band in the UK?

The residence nil-rate band is an additional threshold that applies when a main residence is left to direct descendants. In the tax year 2023/24, this amount is £175,000, which means that the total tax-free amount that can be inherited is £500,000.

Who is responsible for paying Inheritance Tax in the UK?

The executor or administrator of the estate is responsible for paying Inheritance Tax using funds from the estate.

What happens if Inheritance Tax is not paid in the UK?

If Inheritance Tax is not paid on time, HM Revenue and Customs may charge interest and penalties. In extreme cases, they may also take legal action to recover the debt.

Can you get a refund on Inheritance Tax in the UK?

If too much Inheritance Tax has been paid, it is possible to claim a refund from HM Revenue and Customs. This may happen if the value of the estate is later found to be lower than originally estimated, or if certain tax exemptions or reliefs apply.

Tim Butcher

Published on 22/05/2023