Introduction to inheritance tax

Know about inheritance tax and know how it can affect you and your beneficiaries.

13:49 26 February 2013

In the United Kingdom, inheritance tax is also known as transfer tax. This took effect in 1986 effectively replacing capital transfer tax.  This is usually paid on an estate when somebody dies. However, it can be payable on gifts or trusts made during a specific period of time. 

The tax is usually 40per cent of the amount that exceeds £325,000. Anything below this amount is tax-free. For couples and civil partners, the threshold on their estate was increased to as much as £650,000 in 2012-2013. 

 

Inheritance tax is usually paid by the personal representative or executor of the deceased using the latter’s estate fund.  However, these are some instances where beneficiaries or those who received the gifts or who inherit assets have to pay the tax – however, this is very uncommon in United Kingdom. 

 

Determining the inheritance tax is relatively easy. One must start by determining the value of the estate, which include assets like house, possessions, investments, and money. Then, deduct debts, funeral expenses, and household bills. The inheritance tax should be 40per cent of the whole amount. 

 

However, there are inheritance tax exemptions and reliefs. These include spouse or civil partner exemption, charity exemption, annual exemption, small gift exemption, wedding and civil partnership gifts and business, woodland, Heritage and Farm Relief.