Published On: Fri, Sep 20th, 2019

Is Inheritance Tax on a sliding scale? How rates are applied above threshold and on gifts | Personal Finance | Finance


Inheritance Tax is a tax on the estate (property, money and possessions) of a person who has died. The standard threshold is £325,000. Normally, if the value of the estate is below the threshold, then there’s no Inheritance Tax to pay. Similarly, should a person who leaves everything above this threshold to a spouse, civil partner, a charity, or a community amateur sports club, then there’s normally no Inheritance Tax to pay.

It’s also possible to increase the threshold.

This can be done by a couple who are married or in a civil partnership, if one person has an estate worth less than the threshold.

Any unused threshold in these cases can be transferred to the surviving partner upon one’s death.

It’s possible to increase the threshold if an individual gives their home to their children or grandchildren.

The standard Inheritance Tax rate is 40 per cent.

However, this is only charged on the part of the estate that’s above the threshold.

Gov.uk explains that the estate can pay a reduced rate of 36 per cent on some assets, if one leaves 10 per cent or more of the “net value” to charity in their will.

The “Inheritance Tax reduced rate calculator” tool can be found on the HMRC website.

There are some instances where reliefs and exemptions may apply.

For instance, while some gifts given during a person’s lifetime may be taxed after death, depending on when it was given “taper relief” may mean the tax rate charged on the gift is less than 40 per cent.

The standard rate would apply on these gifts subject to the tax if they were given within three years prior to death.

If it was between three and four years, the rate decreases to 32 per cent.

Should it have been given between four and five years before death, the rate is 24 per cent.

The tax paid stands at 16 per cent on the gifts if it was given between five and six years.

This decreases to eight per cent between six and seven years, and the tax rate is zero if it was seven or more years ago.

Business Relief may allow some assets to be passed on free of Inheritance Tax or with a reduced bill.

READ MORE: Inheritance Tax on gifts: How rates may be affected on gifts given in years before death



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