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What Is Inheritance Tax?
Inheritance tax is a tax which you pay on your assets when you die. It is
a very unfair tax, because you will already have paid tax on everything you own in the form
of income tax or VAT when you first aquired it, and you are expected to pay another tax just for
dying.
You only pay tax on assets over £242,000, but anything above that amount is subject to a
huge tax of 40%. Because £242,000 is a large sum of money, many people often make the mistate
of thinking that its a rich persons tax, and will not apply to them, but with the increase
in house prices over the past few decades, many normal people will find their estates ellegible
for income tax after their deaths.
Can't I Give My Wealth Away Before I Die?
you can give unlimited amounts of money away to people within your lifetime, but if you
die within 7 years, inheritance tax must still be paid on it, but on a sliding scale.
For example, if you bestow a gift, and die the next day, full inheritance tax will be paid
on it. If you bestow a gift, and die 4 years later, 60% inheritance tax is paid on it. If
you bestow a gift and die 7 years later, 20% inheritance tax is paid on it. If you bestow a
gift, and die more than 7 years later, it is exempt from inheritance tax. The taxing scale
is shown below.
Years between gift and death |
Percentage of inheritance tax (40%) which is levied |
0 to 3 |
100% |
3 to 4 |
80% |
4 to 5 |
60% |
5 to 6 |
40% |
6 to 7 |
20% |
How Can I Avoid Inheritance Tax?
The first thing you should do is make a list of everything you own, and assess
the total value of your estate. Include houses, cars, insurance, life assurance, stocks
& shares and liquid assets (cash). If you are unsure about the value of your property, consult
a solicitor, and review your wealth often - remember, the value of your property can change,
and tends to go up.
There are several ways to avoid inheritance tax payments on gifts given prior to
death.
Transfers Between Spouses
No inheritance tax is paid on money transfered between spouses, whether on your death, or
as a gift prior to your death. The maximum transfer amount is unlimited.
Gifts of £3000
While still alive, you can give a gift of £3000 to one person per year, and this will be
exempt from inheritance tax which is usually payable if you die within 7 years of making a gift.
Small Gifts Of Up To £250
You can give small gifts of up to £250 away to anyone you like per year, however, you may
not give a small gift to the same person you gave the £3000 gift to. Like the £3000 gift,
these are exempt from inheritance tax payable if you die within 7 years of making a gift.
Gifts On Marriage
You can make these either while still alive, or provide provision for them in your will.
You can leave £2000 to each of your children on their getting married, £1500 to each of
your grandchild on their getting married, and £1000 to anyone else on their getting married.
All of this is tax free, but it only applies to one marriage per person.
Gifts To Charities
Any money which you either, give to a charity before your death, or leave to a charity on
your death is exempt from inheritance tax.
© Luke Culverwell 2001, All Rights Reserved |
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