How does Inheritance Tax work in the UK?
Inheritance Tax (IHT) is a tax on the value of property and assets that are transferred upon death or during lifetime. The current rate for IHT is 40% for transfers made on death and 20% for transfers made during lifetime.
What is the Nil Rate Band and its impact on Inheritance Tax?
The Nil Rate Band (NRB) is the amount if estate that is exempt from IHT. The current amount for NRB is £325,000 per person, plus an additional £175,000 for the main residence if it is passed to descendants. The NRB can be transferred to a spouse or a civil partner, giving a total of £1 million for a couple.
How to reduce Inheritance Tax through methods and exemptions?
Although you may not be able to completely avoid IHT, there are ways to reduce the amount of IHT to be paid by using reliefs and exemptions that are listed below:
- Small Gifts
a. Gifts to spouse/civil partner
b. Gifts to UK/EEA Charity
c. Small gifts up to £250 to anyone
d. Gifts on marriage (between £1000 to £5000 depending upon the relationship) - Property Transfer to Trusts and Companies (Chargeable Lifetime Transfer)
- Transferring Property to Business (Business Property Relief)
- Transfer of Agricultural Property (APR)
- Contribution to Pension Schemes
- Transfer of Nil Rate Band
Penalties for not filing Inheritance Tax returns?
Failure to file your IHT Return leads to an initial penalty of £100 and a daily penalty of £60. The total penalty, however, will not be more than the total IHT Liability.
Under-payment of non-payment of IHT leads to a penalty from 15% up to 100% of the underpaid or unpaid IHT.
If you have any questions regarding Inheritance Tax, our Complete guide is sure to answer all of them with its in-depth analysis.
