Inheritance Tax

Inheritance tax is a tax on the value of assets at death. It is charged at a rate of 40% above the individual Inheritance Tax Nil rate band of currently £300,000. This means that any amount of money you own over £300,000 you will be liable to pay Inheritance Tax.

Where the estate comprises either agricultural property or business property Inheritance Tax relief is available.

If the estate does not qualify for relief you are advised to make the best use of all the personal exemptions. These are currently as follows:

Inter Spouse Exemption - transfers between spouses are normally exempt from inheritance Tax provided that both spouses live in the UK. This exemption can be used to ensure that no tax is payable on the first death within a married couple, providing everything in excess of the deceased's tax-free allowance is left to the surviving spouse.

Annual Exemption - gifts up to £3,000 a year are exempt from Inheritance Tax. If you do not give as much as £3,000 in a particular tax year, the unused amount can be carried forward for one year.

Small Gifts Exemption - any number of individual gifts to different individuals not exceeding £250 in any tax year are exempt from Inheritance Tax. If you have already made a gift to an individual, which is included in the annual limit of £3,000, you cannot also give another £250 under this exemption.

Gifts in consideration of Marriage - certain gifts on marriage are exempt from Inheritance Tax. Each parent may give £5,000, grandparent £2,500, and anyone else may give £1,000.

Gifts to Charities - gifts to charities or the main political parties, which are established in the UK, are exempt from Inheritance Tax.

Lifetime Gifts - making gifts during your lifetime can also be very tax efficient way of passing on your wealth. If you make a gift to another individual, and it is not covered by one of the exemptions, it is known as a potentially exempt transfer. The transfer will be free of Inheritance Tax if you survive for at least seven years after making it. If you die within seven years the original gift will be included in your estate and taxed, but at a reduced rate: 0-3 years 100%; 3-4 years 80%; 4-5 years 60%; 5-6 years 40%;6-7 years 20%. Any growth in the value of the gift will be outside the estate.

Remember for a gift to be effective in reducing Inheritance Tax it must be an outright gift and therefore you cannot have access to the capital or access to the income the capital produces.