Death is an inevitable part of life. As you get older, the chances of losing someone important to you gets higher and higher until it becomes a certainty. As a result of this, the passing of a family member brings a set of legal obligations and issues to sort out among the grieving process. The inheritance tax is a part of this process, and for many people, it’s a new process to try and learn during what is already a difficult time. So what are the inheritance tax rates, and how are they calculated?
What is Inheritance Tax?
Inheritance Tax is first and foremost, a tax applied to the value of all a person’s assets following their death. This taxation is applied to a person’s “estate”, which is their property, all the money they own at that point, and all of their possessions or the value of said possessions. While it is true that inheritance tax isn’t paid if the value of the estate is below£325,000, anything above that threshold is subject to taxation. Furthermore, you can avoid the payment of inheritance tax if you leave everything you own to your significant other or a charity. Another point worth noting is that if you leave your estate to your children, which includes any adopted or fostered children, the threshold for your inheritance tax rises to £425,000 (as at
What Are the Rates for Deducting Inheritance Tax?
The standard rate for inheritance taxation is 40% of the value of the estate which falls above the initial £325,000. To put forward a simple example, pretend for a moment that the value of your estate is £500,000. As the estate is now £175,000 over the limits, the inheritance tax will be calculated at 40% of the amount the estate is over the threshold. There are, of course, certain circumstances which make you exempt from paying inheritance tax. For example, if you are a small business or a company claiming a business relief, then the value of your assets can be reduced, as to avoid the inheritance tax altogether. Furthermore, there can be a reduced amount of inheritance tax paid, if at least 10% of the net value of the estate is left to a charity in the will of the deceased. In that instance, the inheritance
Overall, inheritance tax is a relatively integral part of the process of ensuring the possessions of the deceased are correctly divided up and also ensuring that an estate is legally passed onto the next of kin, while still deducting the correct amount of taxation where applicable. The majority of estates are likely to fall just under this threshold rate of £325,000, but for those estates that do not there will be inheritance tax charged. It is, therefore, important that you understand the process, how to calculate the value of the estate and how much you would need to pay, to make the process as simple as possible during what will already be a difficult time for you and your family.
18th April 2017 by Braintree Wills