What is UK inheritance tax?SmartWill
Inheritance tax is a charge on the estate of a deceased person, often called colloquially ‘death duties’, they are paid on the value of the deceased’s estate.
The estate can include money, personal possessions, property and anything else of value.
In this post, we’ll take you through some of the main points to think about when looking at inheritance tax.
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How much is inheritance tax?
The standard rate of inheritance tax is 40% and this is levied on estates over £325,000.
Anything below this allowance, called the Nil Rate Band (NRB), is tax-free.
As an example, if we imagine an estate worth £500,000, inheritance tax will only be charged on the amount over the allowance.
In other words, £500,000 – £325,000 = £175,000 x 40% = 70,000 tax.
Although the standard rate is set at 40% there are ways that this is reduced depending upon what is left, when it is gifted and who receives it.
This includes things that were left to people in a Will but also includes any gifts made in the preceding seven years.
What things reduce inheritance tax?
The first thing to note is that there is no inheritance tax on assets passed between spouses or civil partners.
Although the standard allowance is £325,000 there is an extra amount for property called ‘The R