Inheritance tax (IHT)is charged on the value of an estate owned by someone who has passed away. Any debts, such as mortgages and funeral expenses are taken from the total estate value first and IHT is only paid on the remaining amount – if it exceeds the threshold.
While many hoped new Prime Minister Liz Truss would axe inheritance tax that is looking more unlikely following the Government’s recent U-turn on tax cuts.
Inheritance tax is charged at 40 percent on assets above £325,000 but there are some exceptions and legal loopholes people should be aware of.
Alex Davies, chief executive of financial advisers at the Wealth Club said: “Following Jeremy Hunt’s comments there is absolutely no way that inheritance tax will be reduced or abolished in the near future.
“HMRC generated £6.1billion last year from this most hated of taxes, making it a real cash cow.”
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The tax expert said it’s a good idea to make use of gifting allowance while still alive.
She added: “Under the current rules, if the gift is given before death, and the donor – the person who gave the gift – lives for more than seven years after this, then no Inheritance Tax needs to be paid.
“However, if the donor dies sooner, then tax will be charged on the gifts at various levels – but only if the Inheritance Tax threshold is reached.
Several types of gifts are exempt from IHT including gifts to your spouse or civil partner and gifts to charities.
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Gifting assets before a person dies can significantly reduce how much inheritance tax will be due on their estate.
HMRC has an online calculator on its website where people can work out how much inheritance tax they will have to pay.
To use the inheritance tax calculator, people will need to know the value of the assets in the estate and the value of gifts the deceased made in the seven years prior to death.
The calculator can be used to work out the amount needed to qualify for reduced IHT rates when preparing a will.