What is Inheritance Tax?
Inheritance Tax is usually paid on an estate when somebody dies. It’s also sometimes payable on trusts or gifts made during someone’s lifetime. Most estates don’t have to pay Inheritance Tax because they’re valued at less than the threshold (£325,000 in 2013-14). The tax is payable at 40% on the amount over this threshold or 36% if the estate qualifies for a reduced rate as a result of a charitable donation.
Inheritance Tax is payable by different people in different circumstances. Typically, the executor or personal representative pays it using funds from the deceased’s estate.
The trustees are usually responsible for paying Inheritance Tax on assets in, or transferred into, a trust. Sometimes people who have received gifts, or who inherit from the deceased, have to pay Inheritance Tax – but this is not common.
The importance of making a will
Making a will and being sure people know where to find it is the first step to making sure that your estate is shared out exactly as you want it to be when you die.
If you don’t leave a will, your estate will be shared out among your next of kin according to a strict order of priority called the ‘rules of intestacy’. This means that people you want to benefit from your estate – such as a partner you’re not married to or in a registered civil partnership with – might get nothing. The rules are different in Scotland.
You can write your will yourself or buy a pre-printed form from many stationers or newsagents. It’s very important to sign your will and get the signature witnessed or it won’t be valid.
If you have more complex financial affairs, you may need legal and financial advice.