Inheritance tax, often referred to as IHT, is the tax your estate pays when you die. It’s actually a straightforward tax, with a charge of 40% made on the net value of everything you own above a designated threshold.
Inheritance tax is calculated on the value of your whole estate, a total that includes your home, its contents, any holiday homes and cars, investments, bank and building society deposits, shares and ISAs. Everyone has a personal Nil Rate Band of £300,000 for the 2007/08 tax year, which is exempt from tax. What’s more, married couples and those in civil partnerships can now combine their Nil Rate Bands, meaning their estates are exempt from tax for up to the value of £600,000.
Going beyond the tax threshold is easier than you might think
These days, it’s not just the very wealthy who pay inheritance tax. With rapidly rising house prices over the last few years it’s much easier to go beyond the tax threshold. Almost £4 billion is expected to be paid in inheritance tax in 2007/08 (Source HM Treasury, Economic and Fiscal Strategy Report 2007), meaning that the average family who falls within the scope of the tax will be handing over £111,000.
By sitting down with one of our advisers we can recommend the best way for you to reduce the amount of tax your family will have to pay, exploring areas such as putting money into trusts, writing or re-writing your will, gifting some of your assets and assigning a life insurance policy to cover your inheritance tax liability.