However, if you give away your home to your children or grandchildren, your threshold will increase to £425,000.
It is worth adding that if you are married or in a civil partnership and your estate is worth less than your threshold, any unused threshold can be added to your partner’s threshold when you die. This in effect means their threshold can be as much as £850,000.
The standard inheritance tax rate is 40% and is only charged on the part of your estate that’s above the threshold.
So, for instance, if your estate is worth £600,000 and your tax-free threshold is £325,000. The inheritance tax charged will be 40% of £275,000 (£500,000 minus £325,000).
Also, the estate can pay inheritance tax at a reduced rate of 36% on some assets if you leave 10% or more of the ‘net value’ to charity in your will.
Reliefs and exemptions to inheritance tax
It is the case that there are some gifts you give while you’re alive which may be taxed after your death. It is dependent on when you gave the gift, and a ‘taper relief’ might mean the inheritance tax charged is less than 40%.
Also, other reliefs, such as Business Relief, allow some assets to be passed on free of inheritance tax or with a reduced bill.
Funds from an estate are used to pay inheritance tax to HM Revenue and Customs (HMRC). This is done by the person dealing with the estate, who is known as the ‘executor’ in cases where there is a will.
The beneficiaries, who are the people who inherit the estate don’t normally pay tax on what they inherit. However, they may have related taxes to pay, for example, if they get rental income from a house left to them in a will.
People who receive gifts might have to pay inheritance tax, but only if you give away more than £325,000 and die within 7 years.
Help with your inheritance tax
Here at Keoghs, Nicholls, Lindsell and Harris LLP, we can put your mind at ease regarding this somewhat challenging subject.
We will take the time to explain to you the benefits but also potential issues that may arise, in order that you achieve a plan which has been designed specifically for you and your loved ones taking all matters of your circumstances into account.
Please contact us today and discuss your situation with one of our inheritance tax experts. We are sure we can help and put your mind at ease.