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How much inheritance tax will I pay?

Inheritance Tax is a tax paid on the value of an individual’s estate when they die. It also applies to certain gifts made during a person’s lifetime. The tax is levied on the estate’s value above a threshold known as the nil-rate band.

How is Inheritance Tax calculated?

Inheritance Tax is calculated by totalling the overall value of an individual’s estate, minus any outstanding debts. Assets which are included when calculating the value of an estate include any property, money, investments, and possessions. For the 2023/24 tax year, the IHT nil-rate band is £325,000. Additionally, an allowance can be applied in circumstances where an individual passes down a residential property to direct descendants. This is known as the residence nil-rate band, which for the 2023/24 tax year, is £175,000.

Inheritance Tax Rates

IHT is typically charged at a rate of 40% on the value of the estate above the nil-rate band. A reduced rate of 36% applies in circumstances where 10% or more of the net value of an estate is left to charity. See here for more information on the current IHT rates and allowances: https://www.gov.uk/inheritance-tax.

Inheritance Tax Reliefs

Certain assets and gifts are entitled to tax relief, these include:

  • Wedding gifts
  • Lifetime gifts
  • Small Gifts
  • Charity donations
  • University fees

Are there any exemptions to paying inheritance tax?

Individuals deemed to be working in high-risk roles are exempt from paying IHT if they die in active service. The exemption also extends to circumstances where an individual is injured during service and later dies as a result of that injury.

Planning ahead

IHT is a complex area of tax law, and its implications can vary significantly based on individual circumstances. Planning ahead and seeking professional advice can help minimise the impact of IHT on your estate, ensuring that your assets are distributed according to your wishes while minimising any potential tax liability.

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