How UK Inheritance Tax works
Inheritance tax (IHT) is starting to be more of a concern to many people.
Most estates (the assets you leave when you die) are still not charged with inheritance tax, as the total value is not high enough, but more estates are being dragged into the IHT net because of rising property prices. However, with sensible planning a lot can be done to mitigate the effects of IHT.
Who is liable to Inheritance Tax?
UK domiciled individuals are caught by IHT on assets they own anywhere in the world and non-UK domiciled individuals only pay UK inheritance tax assets that are situated in the UK, but they may have to pay foreign inheritance tax on non-UK assets in other countries.
There are a lot of gifts that are exempt from IHT, the more common ones being…
Small gifts to any person in a tax year not exceeding £250;
Gifts in consideration of marriage; £5000 if made by a parent of one of the couple ; £2500 by a grandparent and £1000 by anyone else;
Gifts that are part of your normal expenditure out of income and which don’t reduce your net income below that required to maintain your normal standard of living;
Annual transfers up to £3000. Any unused amount may also be carried forward for one year only;
Gifts to charities and registered community amateur sports clubs;
Gifts to political parties;
Maintenance payments to ex-partners.