The standard inheritance tax rate is 40% of anything in your estate over the £325,000 threshold. Your estate is defined as your property, savings and other assets after any debts and funeral expenses have been deducted.
Inheritance Tax is a tax on the estate the property, money and possessions of a person who’s died.
Your estate is defined as your property, savings and other assets after any debts and funeral expenses have been deducted.
The current Inheritance Tax threshold is £325,000 until 2025/2026 however, this can be increased to £650,000 if one partner dies and leaves everything to the surviving partner. This means that subject to certain exemptions, anything over £325,000 will be taxed at 40% unless you leave everything to your spouse or civil partner. This is reduced to 36% if 10% of the estate’s net value is left to charity. There is no inheritance tax to pay on transfers between married couples.
How much tax is due depends on the value of the deceased’s estate which includes all of their assets including cash, investments, property, business, vehicles minus any debts.
The increase in the Inheritance Tax Threshold in April 2021 will allow more individuals to pass on the family home to their direct descendants without the burden of Inheritance Tax, but each individual’s situation will be different.
The tax-free allowance for those leaving property to a child or grandchild is rising to £175,000 in 2020/21 up from £150,000 in 2019/20, meaning that some estates worth up to £1 million will pass free of inheritance tax for the first time.
If you have a life insurance policy, should you die, the payout to your relatives may actually be subject to Inheritance Tax. However, you can have the policy written in trust. This separates the policy from the rest of your estate, which means that there will be no tax to pay. It also helps to speed up the process of your family receiving the cash.
There are many ways to legally mitigate or even in some cases eliminate Inheritance Tax if you plan ahead.