Understanding Inheritance Tax Rules
Importance of individuals understanding what is and what is not exempt from inheritance tax highlighted.
Those that are dealing with an estate after a spouse has died or who are planning their own affairs must take note of the nil rate band (N.R.B.). Any amount of money that falls within the limit of the N.R.B. will not incur tax after death. Until at least the 5th of April 2021 people will deal with a N.R.B. of £325,000. Money that over the N.R.B. is taxed at a considerable rate of 40%.
What Will Incur Inheritance Tax?
The value of assets in an estate are valued as a whole, for most people the single largest asset they will pass on will be property. The N.R.B. has historically closely tracked the average house price in the U.K. through successive governments. Any value over this amount will be subject to inheritance tax unless it qualifies for one or more of a number of exemptions.
What Is Exempt From Inheritance Tax?
The first important exemption is when an estate is transferred to a spouse. As long as the spouse is a resident of the U.K. the rule is simple, if they live overseas it is not always as cut and dry.
If the person who has died did so as a result of action whilst in the Armed Forces their estate does not qualify for inheritance tax. This also applies when it can be proven that death was hastened due to their participation in Armed Forces activity.
Gifts can also qualify as inheritance tax exemptions. A gift to a child under the age of 18 and that is for the purpose of that child’s maintenance is exempt. Gifts to charities and even political parties that hold at least one seat in the House of Commons also qualify.
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