When is Inheritance Tax Charged?
For a single person, the current Inheritance Tax IHT nil rate band threshold is £325,000.
If on death a persons Estate is valued at more than this threshold then Inheritance Tax is payable and is currently charged at a rate of 40% on anything over the threshold.
As a result of changes in October 2007, married couples and registered civil partners can increase the threshold on their Estate when the second partner dies to as much as £650,000 by transfering any unused IHT threshold from their spouse or partner.
The transfer is not automatic though, it must be carried out by the Executors or personal representatives, by transferring the first spouse or civil partner’s unused Inheritance nil rate band to the second spouse or civil partner at the time of second death.
Is Inheritance Tax Payable Between Married Couples?
Inheritance Tax is not payable between a married couple. On the death of the first spouse, the entire Estate passes to the surviving spouse free of Inheritance Tax.
Does Gifting to Charity Effect Inheritance Tax Payable?
If you leave a Gift to Charity in your Will the amount you leave is not counted as part of your taxable Estate so IHT is not charged on this amount.
In addition to this if you leave 10% or more of your Estate to charity this will reduce the Inheritance Tax due from 40% to 36% creating a potentially large saving for your beneficiaries on the remainder of your estate.
If you give to charity in your lifetime these gifts are also exempt from Inheritance Tax. If you do want to make gifts to reduce Inheritance Tax on your Estate you should ensure you keep a record of how much you paid to which charity and the date gifted.
Keep the record in a safe place and let your Executor know where they can find it so they can work out how much Inheritance Tax is payable on your Estate when you die.
You could store it with your Will but remember to never attach anything directly to your Will.
Can I Make Gifts in My Lifetime to help reduce My IHT Liability?
Yes you can make annually exempt gifts worth up to £3000 each tax year which will be exempt from Inheritance Tax. If you don’t use the £3000 exemption one year, it is possible to carry the exemption over to the following year but if unused after that year it is lost.
Gifts you make to individuals in your lifetime become exempt from Inheritance Tax as long as you live for Seven years after the gift is made. These gifts are called potentially exempt transfers (PETs).
You can make tax free gifts to people who are considered financially depending on you, for example your spouse or civil partner, adopted and step children who are under 18 or in full time education and dependent relatives due to old age or infirmity.
Listed below are other smaller gifts which you can make during your lifetime which are exempt from Inheritance Tax, even if you do not survive 7 years.
Wedding Gifts
Wedding gifts are exempt from IHT up to the following amounts.
- Up to £5,000 per Child
- Up to £2,500 per Grandchild
- Up to £1000 for anyone else
Small Gifts of £250
You can make small gifts of £250 per year to as many people as you like, however you can’t use this small gift allowance in conjunction with any other exemption when giving to the same person.
Related Links
Reduced Inheritance Tax for Gifts to Charity
Making A Will
What is an Asset Protection Trust
Changes to Inheritance Tax
