About Inheritance Tax

Inheritance Tax (IHT) is essentially a form of death duty - the tax charged on what you leave behind when you die.

Currently IHT is payable at the rate of 40% of the value of all the assets you leave behind on death apart from the first £325,000 (the nil rate band) for the current tax year (2009/10).

Unfortunately, many people have the idea that IHT only applies to the rich. This is simply not the case. With the rise in property prices many people now have homes that will easily put them into the IHT bracket – often without the addition of modest savings and investments. So, the greater your assets and possessions the greater your liability to IHT.

And, in practical terms, IHT has to be paid by someone's Executors before they are able to manage their assets and potentially hand them on to the beneficiaries.

However, the good news is that with some simple but effective forward planning IHT can be reduced or even mitigated altogether.

Basic rules of IHT

There is no IHT on gifts between spouses (assuming that you are both deemed to be UK domiciled) or on transfers of assets on death
There is no IHT on the first £325,000 (tax year 2009/10) of the value of an estate for each person
IHT is always payable out of the residuary estate unless the Will says that a gift should bear its own tax
When calculating the value of an estate for Inheritance Tax, you must add on the value of all gifts over £3,000 per year made by the deceased in the last 7 years

N.B. The Civil Partnership Act 2004, effective December 2005, means that registered same sex couples are treated as married couples for IHT purposes.