Inheritance tax is one of the most controversial taxes in the UK. Not only can it take a large portion of your inheritance, but it can also be quite complex to understand.
The good news is, there are ways to reduce the amount of inheritance tax you need to pay, such as applying for tax relief. Here, youâ€™ll discover everything you need to know about inheritance tax and the types of relief available.
What is the inheritance tax?
Inheritance tax is a type of tax applied to estates that are passed on after a person dies. The estate can include property, business, assets, and cash. However, inheritance tax only applies to estates which total more than Â£325,000. So, if you were looking to pass on business, for example, it would need to be worth at least Â£325,000 before inheritance tax is taken.
The rate of tax for estates that do meet the minimum threshold, is 40%. If the estate has been left in a will, it is typically the executor of the will who is responsible for paying the inheritance tax. If a will wasnâ€™t left, it would be the responsibility of the administrator.
Ways to reduce the amount you need to pay
It is understandable to be worried about the amount of inheritance tax you have to pay. However, there are ways to reduce the amount owed, as well as ways to escape the tax completely.
For example, if youâ€™re dealing with trading assets, they will usually qualify for Business Relief. This will usually allow you to benefit from a 100% relief rate. So, say you own a share in a business worth Â£500,000. With the business relief rate of 100%, youâ€™d have no inheritance tax to pay when transferring the business over when youâ€™re alive or dead. You may need to pay capital gains if youâ€™re still alive, but this is much less than the cost of inheritance tax.
The benefit of seeking advice
The above are the basics of inheritance tax. However, for the average person it can be really complex to understand. That is where expert advice can prove invaluable.
Seeking inheritance tax advice will help you to avoid paying too much when the time comes. Professionals can also help you to identify ways to reduce the tax paid if your estate is eligible to be taxed. They can give you advice on transferring assets over to your spouse for example.
Overall, inheritance tax can be a worry but there are so many ways to reduce it, and sometimes eliminate it completely. If you are planning on passing down a business to your family for example, as long as it falls under Â£325,000, there will be no inheritance tax to pay.
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