Inheritance Tax (IHT) is due when a person’s estate (their property and possessions) is worth more than £325,000 when they die. This is called the ‘IHT threshold’.
The current rate of IHT is 40% on anything above the threshold. The rate may be reduced to 36% if more than 10% of the estate is left to charity.
Who pays Inheritance Tax
Usually the executor or personal representative for the person who has died pays IHT using the funds from the estate.
Trustees are responsible for paying IHT on trusts, which are a way of looking after assets (money, investments, land or buildings) for people. A trustee is a person who looks after the trust.
If you’ve got an inheritance or a gift from someone who has died you only owe IHT if their estate is more than £325,000 and either:
- it says in the will that you should pay Inheritance Tax
- the deceased’s estate can’t pay it
There are certain reliefs from IHT. These include estates that include certain business assets or agricultural property.
It is also possible to reduce any IHT due on death by reorganising your estate while you are alive. This can be done with the use of trusts or by gifting assets. As you can imagine there are complicated rules that set out how these strategies can be used. Additionally, any assets left to your spouse or civil partner (providing they are UK domiciled) are exempt from IHT.