Inheritance Tax (IHT)

Inheritance Tax (IHT) is payable by individuals. It is both a tax payable on death and on gifts during your lifetime.

The first £325,000 of chargeable transfers by an individual is free of IHT. Accumulated transfers in excess of this either at the time of death or within the seven years preceding death are taxed at 40%, subject to some restrictions on transfers more than three years before death. For other lifetime transfers, the rate of IHT is 20%.

As with all capital taxes, the rules relating to the taxation of gifts and deemed gifts are complicated and there are numerous relief and allowances allowable to help mitigate the impact of IHT.

Not all gifts of assets are transfers that fall to be taxed under IHT. For example, transfers between spouses are exempt from IHT. Some gifts, 'potentially exempt transfers', can become exempt from IHT if the donor survives seven years. If the donor dies within that time-scale, the transfer becomes a chargeable transfer which may be mitigated in part by taper relief.

In order to minimise the impact of IHT, individuals should review their wills and potential exposure to IHT on a regular basis. Planning can assist in the mitigation of potential IHT, the most effective IHT planning is that undertaken well in advance of the date of death.

Why not take a look at our new Inheritance Tax Calculator.

Where IHT can be forecast to arise, steps can be taken to cover the settlement of such liabilities by taking out appropriate life cover policies to meet these anticipated liabilities.

Contact your local office to arrange a meeting with one of our Tax partners specialising in IHT who will be able to assist you with this complicated area.