Inheritance Tax

older woman with grown up daughter

Inheritance Tax (IHT) may be payable on a person’s estate after they die. The first £325‚000 of an estate is exempt from IHT. This is called the nil rate band because tax is charged at 0%. Thereafter tax is charged at 40%.

Since 9 October 2007‚ where a spouse or civil partner dies‚ any unused part of that person’s nil rate band can be passed on to the survivor. When the second person dies‚ their estate could benefit by up to double the nil rate band in force at the time.

Overseas properties

UK inheritance tax will still apply to an overseas property if you are UK domiciled. Even if you are non-domiciled you will still be liable to UK inheritance tax if you were domiciled in the UK in the previous three tax years‚ or if you were resident in 17 of the previous 20 tax years. 

Any double taxation agreement will prevent you from having to pay full inheritance tax twice in both countries but this agreement does not apply to all countries‚ for example Spain does not come under this agreement. However in these cases under the Inheritance Tax Act 1984 you should be able to apply for a credit for inheritance tax paid overseas.

Gifts exempt from Inheritance Tax

Gifts of up to £3,000 in each tax year are exempted, plus up to £3,000 of the previous year’s allowance if unused. Gifts to individuals of up to £250 each are exempt, as are wedding or civil partnership gifts of up to £5,000 by each parent or step-parent, £2,500 by each grandparent or great-grandparent, or £1,000 by people outside the categories mentioned.

Gifts to charities established in the United Kingdom, political parties, housing associations or for ‘national purposes’, eg a museum or university, are also exempt.

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