So what exactly is Inheritance Tax or IHT?
It has rather humorously been described as a voluntary tax, due mainly to the fact that there are many ways to mitigate it that quite a lot of people make no efforts to do. HMRC raise in excess of £5,000,000,000 per annum yes that was £5 billion from IHT. That is up from around 2 billion a decade ago.
It has rather humorously been described as a voluntary tax, due mainly to the fact that there are many ways to mitigate it that quite a lot of people make no efforts to do. HMRC raise in excess of £5,000,000,000 per annum yes that was £5 billion from IHT. That is up from around 2 billion a decade ago.
The tax is essentially potentially due on monies past onto beneficiaries other than the spouse. Considering we have already been taxed throughout our lives its best to plan accordingly to minimise or even eliminate any inheritance tax due on your death.
It is little known that there are two levels at the moment people think there is only one but there is not there are indeed two. The first one is £0 to £325,000 (rates for tax year 2020-21) this is currently zero rated. This is one of the levels because whilst extremely unlikely the government is always able to raise this level from zero to actually generate revenue.
The next level is over £325,000 and this level and beyond is taxed at 40%. So any money over and above £325,000 is potentially taxable at a rate of 40%.
We say potentially, it is important to understand that IHT is always potential, potentially it is due and potentially it may not be due. With careful planning the potential can be reduced in quite a lot of cases down to nothing.
So to summarise inheritance tax is a tax on your estate when it is passed onto your beneficiaries. It is taxed at a rate of 40% on any amount over £325,000. So an example of a total estate passed onto beneficiaries worth £425,000 with a single allowance would attract a tax of £40,000.
