Inheritance tax is paid on any assets you leave to family or friends when you die, we explain what you need to know and how to avoid it altogether.
It is a tax you must pay on any money and possessions you leave behind when you die - possibly also on some gifts you made during your lifetime.
Inheritance tax is charged at a rate of 40%.
The exception to this is if you leave at least 10% of your estate to charity. This reduces the inheritance tax rate to 36%.
You can leave up to a total of £325,000 (in money, property and possessions) without being charged inheritance tax.
From April 2017, there will be an additional allowance for your main residence on top of your inheritance tax, read this guide to find out more.
You can also make some gifts during your lifetime that will not be liable for inheritance tax when you die. See our guide to gifting money for more detail on this.
No, only the amount over the threshold is liable, fore example £325,000 is not taxed, but the additional £5,000 will be liable for inheritance tax.
Inheritance tax rules for married couples and civil partners state that they can leave their possessions and property to each other on passing, tax free.
In addition, the partner who dies last may use both partners' tax free allowance when leaving their property and possessions to family and friends.
In effect, this means the surviving partner gets double the tax free allowance - £650,000.
Usually, the deceased's estate is valued and inheritance tax worked out by the solicitor dealing with probate on behalf of the deceased and their family.
It is paid out of your estate when you die. This means inheritance tax will be deducted before anything you have left to friends and family is paid out.
However, if you made a gift to someone during your life, which is liable for inheritance tax after your death, the recipient of that gift will be asked to pay the tax direct.
It must be be paid within six months of death, otherwise the estate will have to start paying interest.
You can find out more about the rules and regulations governing inheritance tax and how you can go about reducing what you owe on the GOV.uk website.
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