Understanding Inheritance Tax

Are you carrying out the execution of a Will, and need to learn more about inheritance tax and how it could affect the estate and how much is left for the beneficiaries?

Perhaps you are looking into creating a Will or amending your current Will, and you want to optimise your Will so you can avoid paying as much inheritance tax as possible?

Inheritance tax can be complex, and it is an often misunderstood business. When establishing anything in your Will, you should make sure you have the guidance of a Will writing specialist or probate solicitor.

Worth of an Estate and Inheritance Tax

Inheritance tax is tax paid on the total worth of an individual’s estate after they die. If the worth of the estate exceeds a certain threshold (currently £325,000) then inheritance tax is payable on any excess, at a rate of 40%.

For thirteen years between 1996 and 2009, the threshold rose every year. However, it has now been fixed at £325,000 until 2015. When the rate does change, you should consult your probate solicitor to ascertain whether or not you need to adjust your Will.

The Inheritance Tax Threshold

An amount as high as £325,000 may seem like a lot (the inheritance tax threshold has increased a great deal since 1946, when inheritance tax was payable on anything over £100), but it’s easier for your total estate to hit that sum than you might think.

Once you factor in the cost of your home and your possessions, as well as any shares and savings accounts you may have, your estate could amount to more than you think.

Inheritance tax also takes other things into account, such as gifts. If you give a financial gift to someone else within seven years of your death, this amount will be included in the calculation of your inheritance tax.

Inheritance Tax Exceptions

There are ways to avoid paying the full amount of inheritance tax on an estate.

For example, the government have announced an initiative to benefit charitable causes and increase the number of individuals leaving legacies to charity after they pass away.

By leaving at least 10% of their overall estate to charitable causes, an individual can earn a 4% cut in inheritance tax on their estate once they die. This measure is due to be introduced in April 2012, but it is recommended that you consult with a probate solicitor before making any changes to your Will.