An individual is responsible for the payment of inheritance tax when the estate of the deceased is worth more than £325,000 at the time of his or her death. This is known as the “Inheritance Tax threshold.” The amount of inheritance tax due is 40 percent on any amount that exceeds the £325,000 allowable cap. There is a possibility this percentage may be reduced to 36 percent if the deceased donates more than ten percent of his estate to charity.
Payment of Inheritance Tax
In most cases either the executor of the estate or a personal representative of the deceased pays the inheritance tax from the funds in the estate. It is the responsibility of the trustees to paying any inheritance taxes on trusts which are designed to look after various assets; the trustee is the person responsible for looking after the trust.
Avoiding Inheritance Tax Liability
Under UK tax laws some gifts are free from inheritance tax liability regardless of when the deceased bequeathed those gifts. The gifts that are always free from inheritance taxes include the following:
• Gifts between a husband and wife or domestic or civil partners when both are living in the UK are tax free. However, if one partner is living outside of the UK only gifts with a value of £55,000 or less are exempt.
• Any gifts the beneficiary makes to established charities in the UK, national museums, universities, the National Trust and other similar bodies are free from inheritance tax as are gifts to political parties, registered housing associations and amateur sports clubs within the community.
• The majority of gifts made to individuals more than seven years before the death of the benefactor are free of tax.
• Any gifts that are part of your normal expenses such as money from surplus income are qualified. However, the gift cannot reduce your standard of living, cannot be from capital and is part of a regular pattern of spending.
• Wedding gifts can be up to £5,000 from each parent or £2,500 from each grandparent or other relative (the same amount from the couple to one another) and £1,000 from anyone else.
• Gifts of up to £250 for each individual for covering things such as birthday and Christmas gifts.
• Gifts for maintenance that include but are not limited to payments to ex-spouses, ex-civil partners, relatives you help in old age or illness, and education and training of your children.
• There is an annual exemption that allows payment for gifts up to £3000 each year separate from the £250.
As you can see from the exemptions and provisions for inheritance taxes and exemptions in the UK are quite complicated. For this reason it is more beneficial for all individuals to plan ahead of time; this is true for both the benefactor as well as beneficiaries if they are aware of a possible inheritance. The early an individual plans, the easier it will be for the executor of the estate to finalize all inheritance amounts at the time of the benefactor’s death.