Tax­ing is­sue of in­her­i­tance

Macclesfield Express - - YOUR PICTURES -

OVER the past few weeks there has been a lot in the news about in­her­i­tance tax, but not that many peo­ple un­der­stand the com­plex rules about this. ●● What is in­her­i­tance tax?

In­her­i­tance tax is payable on the es­tate of a per­son who has died if the value of the es­tate, in­clud­ing cer­tain gifts made within seven years of death, is over a cer­tain thresh­old, also known as the nil-rate band. ●● What is an es­tate?

An es­tate is made up of ev­ery­thing owned by the per­son who has died less what she/he owes and cer­tain ex­penses, for ex­am­ple fu­neral ex­penses.

For in­her­i­tance tax pur­poses the es­tate might also in­clude the value of cer­tain gifts made dur­ing the de­ceased’s life­time and in­ter­ests in trusts.

Cer­tain ex­emp­tions and re­liefs can re­duce the size of the tax­able es­tate. ●● Rates and thresh­olds

In­her­i­tance tax (IHT) is payable at 40 per cent on the amount of the es­tate above the thresh­old.

The rate payable may be lower on cer­tain gifts made dur­ing the life­time of the per­son who has died, due to the op­er­a­tion of ta­per re­lief on some life­time gifts.

In­her­i­tance tax may be payable at a re­duced rate if you leave at least 10 per cent of your es­tate to char­ity.

The nil thresh­old £325,000.

The date of death de­ter­mines which thresh­old ap­plies.

Spe­cial rules ap­ply to the thresh­old for mar­ried cou­ples and civil part­ners rate band for IHT is if the first per­son to die has not used her/his nil rate band (see next para­graph). ●● Cou­ples trans­fer­ring un­used in­her­i­tance tax thresh­old

For cou­ples who are mar­ried or in a civil part­ner­ship, any pro­por­tion of the nil-rate band that has not been used on the death of the first spouse or civil part­ner can be used when the se­cond spouse or civil part­ner dies, pro­vided the se­cond death oc­curred on or af­ter Oc­to­ber 9, 2007.

It does not mat­ter how long ago the first death oc­curred. ●● Ex­am­ple:

A dies and his es­tate passes to B, his wife, free of IHT be­cause trans­fers be­tween spouses and civil part­ners are ex­empt from IHT.

Con­se­quently, he has not used any of his nil-rate band. When B dies, the whole of A’s nil-rate band is avail­able to B, whose nil-rate band is in­creased by 100 per cent (to £650,000 in 2013/14).

Worked ex­am­ples of how the trans­fer works, in­clud­ing when part of the nil rate band has al­ready been used on the first death, can be found at hmrc.gov.uk. ●● Ex­emp­tions and re­liefs

Some gifts are com­pletely free from (IHT) whether made in the life­time of the per­son who has died and are not in­cluded in the de­ceased’s es­tate when work­ing out if any tax is due.

Gifts to a hus­band, wife or civil part­ner, pro­vided her/his per­ma­nent home is in the UK.

The amount of the ex­emp­tion is lim­ited for spouses or civil part­ners who are not domi­ciled in the UK.

Gifts to reg­is­tered char­i­ties or to reg­is­tered am­a­teur sports clubs in the UK.

Cer­tain sums paid out from an oc­cu­pa­tional or per­sonal pen­sion scheme.

Most gifts to po­lit­i­cal par­ties with an MP in the House of Com­mons.

Gifts to cer­tain na­tional in­sti­tu­tions spec­i­fied by HM Rev­enue and Cus­toms (HMRC), for ex­am­ple, mu­se­ums, uni­ver­si­ties and the Na­tional Trust.

Gifts of agri­cul­tural land.

Gifts of wood­land. The fol­low­ing gifts made in the donor’s life­time (life­time gifts) are ex­empt from IHT even if she/he dies within seven years of mak­ing them:

The an­nual ex­emp­tion – gifts worth up to £3,000 in each tax year.

This can be a sin­gle gift or sev­eral gifts adding up to that amount.

Any un­used part of the ex­emp­tion can be car­ried for­ward to the fol­low­ing year, but, if un­used, it ex­pires af­ter that.

Small gifts – up to the value of £250 to any num­ber of peo­ple in any one tax year.

Wed­ding and civil part­ner­ship cer­e­mony gifts - sub­ject to cer­tain lim­its de­pend­ing on who is giv­ing the gift.

Par­ents can each give cash or gifts up to £5,000, grand­par­ents or great grand­par­ents up to £2,500 each, and other peo­ple up to £1,000.

For fur­ther in­for­ma­tion about in­her­i­tance tax, go to gov.co.uk.

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