What is Inheritance tax?
Inheritance tax is a tax charged on someone estate when they pass away. An estate includes all assets, possessions etc.
Inheritance tax exemptions
There are some conditions where inheritance tax will not be charged:
Where the estate is passed on to a partner, civil partner , charity or a community ammateur sport.
If you give your home to your children this can boost your threshold up to £450,000
If you have a civil partner, husband or wife who passed away and doesn't use their maximum estate threshold then you can use this when you pass away as part of your threshold. This means your threshold can increase by up to £900,000
Anything you leave in your estate to anyone outside of your children, married partner or civil partner is considered part of your estate and may be taxed if it pushes your estate above the applicable threshold.
Inheritance tax in the UK
The inheritance tax rate in the Uk is 40%. This is only charged on the part of your estate that is above this threshold.
Take for example your estate is worth £1m and your threshold is £900,000 because your civil partner passed away and didn't use any of there £450,000 estate which they gave to you and you are giving to your children. This means you will charged 40% on the £100,000 which is above the threshold.
You can also pay 36% on [inheritance tax}(https://www.gov.uk/inheritance-tax-reduced-rate-calculator) if you leave more than 10% of the net value of your assets to a charity.
Inheritance tax is paid by the person dealing with your estate if there is a will. This person is known as the executor.
People in your will, will usually not need to pay any tax on the things they inherit although people you gave gifts to in this 7 years before you died might need to pay inheritance tax.
Inheritance tax will usually need to be paid within 6 months of the persons death. Any part of the estate not paid within this time will begin to incur interest son it is usually a good shout for the executor or the person dealing with the estate to pay some tax to reduce the interest being charge even if they are not yet sure of the finale value of the estate.
HMRC will refund the estate if it has overpaid inheritance tax.
How to value your estate
To value your assets you simply need to deduct your liabilities from your assets.
You will need to keep records of how you have come up with this number as HMRC might ask to see this going back as much as 20 years after you have paid inheritance tax.
Assets will include any payout from insurance, the equity in your property, shares, bonds, jewelry and paintings.
You will also need to add any gifts given within the last 7 years which were above the yearly allowance for gifts.
Gifts that were given out before the 7 year period but the person who died continued to benefit from them will also need to be added as these are known as gifts with reservations of benefits . E.g a house was given out but the person continued to live in the house/
Liabilities will include any debt owed.