Inheritance Tax

Inheritance Tax is paid if a person’s estate (their property, money and possessions) is worth more than £325,000* when they die. This is called the ‘Inheritance Tax threshold’. There are different thresholds for previous years.

* The threshold for the 2016/17 tax year is £325,000. Further changes commence from April 2017.

The rate of Inheritance Tax is 40% on anything above the threshold. The rate may be reduced to 36% if 10% or more of the estate is left to charity.
Usually the ‘executor’ of the will or the ‘administrator’ of the estate pays Inheritance Tax using funds from the estate.

An executor is a person named in the will to deal with the estate – there can be more than one. An administrator is the person who deals with the estate if there’s no will.

If you’ve received an inheritance, you usually don’t pay Inheritance Tax. There are some exceptions. You may still have to pay other taxes. For example, you may have to pay Inheritance Tax if someone who died gave you a gift while they were alive. The estate of the person who died usually pays Inheritance Tax. You may need to pay Inheritance Tax if the estate can’t or doesn’t pay it. You may need to pay Inheritance Tax on a gift the person gave you in the 7 years before they died.You may also need to pay it if your inheritance is put into a trust and the trust can’t or doesn’t pay.
Cohabitees are treated as single and, therefore, do not benefit from the spouses’ exemption or transferable Nil Rate Bands. Indeed, if cohabitees leave their estate to the surviving partner and then to their children it is possible that some of their estate is taxed twice before reaching their children.

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