IHT – The complete guide

June 21, 2022 9:22 am Published by

IHT – The complete guide

What is IHT

IHT stands for Inheritance Tax. Inheritance Tax is tax on the estate (money, possessions, and property) of someone who has recently died.

Do I need to pay IHT?

If and how much you need to pay depends on the value of the deceased estate. This is worked out based on their assets.

There’s tax to pay if:

  • The value of the estate is over £325,000
  • Rate of IHT is 40%
  • IHT is on anything over the threshold

There’s normally no tax to pay if:

  • The value of the estate is under the £325,000 threshold.
  • you leave everything above the £325,000 threshold to your spouse, civil partner, a charity, or a community amateur sports club. (You may still need to report the value of the estate even if it’s under the threshold).

If you give away your home to your children or grandchildren, the threshold can increase to £500,000

If you’re married or in a civil partnership and your estate is worth less than your threshold, any unused threshold can be added to your partner’s threshold when you die.

IHT Rates

As previously mentioned, anything above the £325,000 threshold, gets taxed at 40%. (Or 36% if you leave at least 10% of the value after any deductions to a charity in your will).

Married/civil partnership couples

There are some major benefits when it comes to IHT and being married or in a civil partnership.

The rules state that:

  • When you die, assets left to your spouse or registered civil partner, provided they’re living in the UK, are exempt from inheritance tax.

Transferring unused basic threshold:

If the £325,000 threshold has not been fully used when the first person in a marriage or civil partnership dies, you can transfer it. The unused part can go to the surviving spouse or civil partner.

Alsohe basic tax-free allowance available when a spouse or civil partner dies can be as much as £650,000 if none of their £325,000 threshold was used when the first partner of the couple died.

When do I need to pay IHT?

You must pay Inheritance Tax by the end of the sixth month after the person died.

HMRC will charge interest if it is not paid by the due date.

You will need to get a reference number, at least 3 weeks before you make a payment, before you can pay the IHT bill.

BPR (Business Property Relief):

What is it?

BPR stands for business property relief. BPR reduces the value of a business or its assets when working out how much Inheritance Tax has to be paid.

Business relief can be either 50% or 100% of some of an estates business asset which can be passed on; while the owner is still alive, or as part of the will.

You can claim 100% Business Relief on:

  • A business of interest in a business
  • Shares in an unlisted company

You can claim 50% Business Relief on:

  • shares controlling more than 50% of the voting rights in a listed company
  • land, buildings, or machinery owned by the deceased and used in a business they were a partner in or controlled
  • land, buildings, or machinery used in the business and held in a trust that it has the right to benefit from

If you have any questions regarding IHT please contact Spectrum on 01179 902218, or email us.

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This post was written by Daisy Vowles

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