Inheritance Tax: Four things you really ought to know

Rules around Inheritance Tax can be confusing, but as we will all leave something for someone one day, it is necessary to understand the basics.

We asked Tony Marchi, principal at ILAWS Scotland, to tell us the four most important things about Inheritance Tax.

Let us assume an example case of a couple who own a £400k property with no mortgage and just a little savings.

There is no Inheritance Tax between spouses: If you are married or in a civil partnership, and your spouse/partner passes away, there is no Inheritance Tax to pay if they leave you money or property regardless of the size of your estate (though if you live together and are unmarried, there could be).

You have a personal allowance of £325,000: This means that whatever you own, you and your spouse have an allowance of £325,000 each before any tax is due (In our example, totalling £650,000). If one of you passes away, the remaining spouse can still benefit from their late husband/wife’s allowance.

On top of this if you own property there is a Residential Allowance of up to £175,000 each, as long as you are passing your property onto a direct descendant (your son, daughter or grandchild).

You will have heard the phrase “seven-year rule” when Inheritance Tax is discussed. However, the vast majority of homeowners who leave property, savings and their estate to family do not qualify. In our example this is because the total value of their entire estate needs to be above £1million (£325,000 plus £175,000 each).

ILAWS Scotland wants to ensure people receive the correct advice and guidance when it comes to inheritance.

The estate planning experts can set up (or revise) your Will and arrange a Power of Attorney for you, too.