Inheritance Tax (IHT)

Have You Heard About Inheritance Tax?



Posted on: 16th May 2023

There are taxes for everything nowadays. It can be easy to forget most of them until they jump out at you. One that has become very prominent over the last few years has been Inheritance Tax (IHT).

Inheritance tax is levied on the transfer of property and wealth from one person to another upon death. It is governed by the Inheritance Tax Act 1984 and imposed on estates valued over a certain threshold. To better understand IHT, let’s look at who is subject to it, how it gets calculated and how it can be minimised or avoided.

Thresholds and Exemptions

Naturally, this is what you want to know first and foremost – if this certain tax affects your plans. In the UK, the current threshold for IHT stands at £325,000.

That means if your estate is valued at less than that figure, you will owe no IHT. However, if your estate exceeds that amount, you will owe Inheritance Tax on whatever is above that threshold. There are several exemptions and reliefs available which could reduce the amount of IHT you will owe, which you can discuss with independent financial advisers Cheshire.

These could be in the arenas of transfers to a spouse or civil partner, gifting to charities and business and agricultural property relief.

How It Gets Calculated

Inheritance Tax (IHT) is calculated at a rate of 40% on the portion of the estate that exceeds the threshold.

As an example, if your estate is valued at £400,000, your Inheritance Tax payout would be owed £75,000 (£400,000 – £325,000), resulting in a tax bill of £30,000. Whilst that figure may be eye-watering, there do exist several strategies that can either minimise or help avoid inheritance tax in the UK. The best way to discover these is via your independent financial advisers Manchester.

Minimise or Avoid

Among the most effective paths to downgrade your IHT tax is to make gifts to individuals during your lifetime, as long as you survive for seven years following the gifting. That would make the gift exempt from IHT.

Another successful strategy is making use of trusts, which can be used to transfer wealth to future generations without incurring an inheritance tax. Other paths can be explored where you can reduce the value of your estate by paying off all debts, making gifts to charities and investing in tax-efficient avenues such as business property relief.

It is important to understand all rules and regulations before taking any action around your IHT standpoint. The best way is to seek professional advice from the best independent financial advisers UK.

Contact our team at Haven IFA today for more information on avoiding Inheritance Tax.