Can you explain inheritance tax?

Question

Can you explain inheritance tax?

Answer 1

In a nutshell:

1. When someone dies, all their assets are added together (and debts taken off). This is their estate.

2. You add to their estate any gifts made in the 7 years before death, to get to the chargeable amount.

3. Then take off from this the nil rate band - £312,000.

4. What you have left is taxed at 40%.

5. However, there is no tax on assets left to spouse or to charity.

Those are the basics. There are lots of complicated rules for more complicated situations.

Answer 2

With ever-increasing property prices, more and more people’s assets are now worth more than the inheritance tax threshold of £285,000, which has never been increased in proportion to the recent property boom. With a rate of 40% inheritance tax on any assets above the £285,000 threshold in the estate, this can really put a dent in what your heirs receive from your estate. Inheritance tax is levied upon a person’s death. Once all of their assets have been totaled up, anything over the threshold will have to be paid by the executors of their will

Answer 3

As above, but (2) is wrong. The amount added reduces from year 3 to zero in 20% increments, so after 5 years it's only 60% etc.