Inheritance Tax

(The weekly series - Pocket Money - where I explain financial basics in fewer than 200 words. Feel free to make suggestions!)

Inheritance Tax (IHT) is a tax paid on an estate after the owner’s death, which can include property, money and possessions. 

In the UK IHT is currently applied to estates valued above £325,000; those below this threshold aren’t typically taxed.

The standard rate is 40% on the value of the estate above the threshold, though there are reliefs and exemptions that can reduce the taxable amount.

Exemptions: Spouses and civil partners can inherit an estate tax-free. Gifts to charities and political parties are also exempt from IHT.

Reliefs:  If you own a home (or part of one), your tax-free threshold can increase to £500,000 if passed to children or grandchildren, provided your estate is under £2,000,000.

You cannot simply give your property away to avoid paying IHT. However, you may give away up to £3,000 a year without incurring tax. Gifts over this amount may still be included in your estate depending on when the gift was given, their value and the recipient. 

IHT is a complex area that warrants proper thought and specialist advice. 

Love Eleanor. xxx