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What You Need to Know About Inheritance Tax

November 22, 2011 | Comments: 0 | Views: 117

What is the increased threshold?

Married couples and registered civil partners can effectively increase the threshold on their estate when the second of them dies - to a maximum of £650,000 in 2011/12. Their personal representatives must claim the unused Inheritance Tax threshold or "nil rate band" of the first spouse or civil partner so that it is available to set against the estate of the second spouse or civil partner.

Who is responsible for paying the tax?

Inheritance Tax is payable by different people in different circumstances. Usually, personal representatives pay it using funds from the estate of the deceased. Trustees are usually responsible for paying Inheritance Tax on assets in, or transferred into, a Trust. Sometimes people who have received gifts, or who inherit from the deceased, have to pay the Tax - but this is not common.

How do I find out if Inheritance Tax is payable?

To find out if the Tax is due on an estate, you must first value the estate. i.e. calculate the value of all assets owned at the date of death - including any property, possessions, money and investments - and deduct any debts owed, including household bills and funeral expenses.

The estate also includes the deceased's share of any jointly owned assets and the value of any assets held in a trust from which they were entitled to income.

Any gifts that the deceased may have made in their lifetime should be reviewed to see if they are exempt and, if not, they must be included in the overall value of the estate.

What exemptions and reliefs are there?

Sometimes, even if your estate is over the threshold, you can pass on assets without having to pay the tax. Exemptions and reliefs include:-

* Spouse or civil partner exemption - your estate usually doesn't owe the Tax on anything you leave to a spouse or civil partner who has their permanent home in the UK - nor on gifts you make to them in your lifetime - even if the amount is over the threshold.

* Charity exemption - any gifts you make to a "qualifying" charity - during your lifetime or in your Will - will be exempt from Inheritance Tax. In the 2011 budget the Chancellor announced a 10% discount on Inheritance Tax for those individuals who left at least 10% of the value of their net estate to a registered charity. The reduction effectively means a 10% discount off the standard 40% rate of Inheritance Tax - being 36%.

* Potentially Exempt Transfers - if you survive for 7 years after making a gift to someone, the gift is generally exempt from Inheritance Tax, no matter what the value,

* Annual Exemption - you can give up to £3,000 away each year, either as a single gift or as several gifts adding up to that amount - you can also use your unused allowance from the previous year, but you use the current year's allowance first.

* Wedding and civil partnership gifts - gifts to someone getting married or registering a civil partnership are exempt up to an amount which is dependent on the closeness of the relationship to the individual who is to be married.

* Business, woodland, heritage and farm relief - if the deceased owned a business, farm, woodland or national heritage property, some relief from Inheritance Tax may be available.

* Small gift exemption - small gifts of up to £250 to as many individuals as you like, can be made tax free

When does the Tax have to be paid?

In most cases Inheritance Tax must be paid within 6 months of the end of the month in which the deceased died, after which time interest will be charged on the amount outstanding. Inheritance Tax payable on certain assets including land and property may be paid in annual instalments over 10 years.

If you wish to consider reducing your Inheritance Tax liability we recommend that you take professional advice and ensure that your Will is up to date. The sooner you plan to do something about your inheritance tax liability, the more effective your arrangements will be. Please contact us for further information.

Source: EzineArticles
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