What is inheritance tax?
Inheritance tax is a tax of 40% which applies to somebody’s estate after they die. It applies to estates that are worth over £325,000, or more if the proceeds of the sale of a home are included.
What’s exempt from inheritance tax?
You won’t have to pay any inheritance tax if:
- The value of your estate is below the £325,000 threshold
- You leave anything above the threshold to a spouse or partner
- You leave everything above the threshold to a charity
Good to know – You may also be exempt from paying inheritance tax if you work in a risky occupation and die in active service. This can include the armed forces, police, firefighters, paramedics and humanitarian aid workers. You might also be exempt if a person injured in active service has their life cut short as a result of their injury, despite not still being in active service.
How much is inheritance tax?
If the value of your entire estate is above £325,000 then part of your estate will be liable for the 40% inheritance tax (this is called the Nil Rate Band). So, for example, if your estate is worth £600,000, you’ll only have to pay tax on £275,000 of it.
The 40% rate of inheritance tax is fixed until 2021 but it can be increased if you’re widowed or a surviving partner as the value of the estate you inherit is added on to your own. Couples can transfer any unused Nil Rate Band to the surviving partner.
You can read more about the Nil Rate Band and the Residence Nil Rate Band here.
What’s included in the value of my estate?
The value of your estate can include:
- Your savings
- Any possessions including cars, jewelry or shares
- Property or land
- Jointly owned assets
- Pension funds
- The deduction of any debts and liabilities
If you’re thinking about your legacy, why not check out our Wills service? Answer a few simple questions on your phone, tablet or PC to create a legally-binding Will. And if you need to change it later down the line (because life happens and things change), we can do that for you too. No expensive lawyers, no hassle. Just peace of mind. Find out more about our Wills service here.