Home > Inheritance Tax > Liability for Tax

Liability for Tax

By: J.A.J Aaronson - Updated: 1 Sep 2012 | comments*Discuss
 
Liability Inheritance Tax Iht Nil Rate

Inheritance Tax is one of the most feared and yet least planned-for forms of taxation in the UK. Forward thinking is imperative if you are to ensure that your dependants’ finances are not aversely affected by Inheritance Tax (IHT) and so it is important to know whether or not you are likely to be liable to pay it.

The Estate

Inheritance Tax is paid on the total value of the estate of a deceased individual. The term ‘estate’ refers to almost everything owned by that individual at the time of death, although there are some exemptions. Furthermore, some gifts made within a certain time period before death will also be liable for IHT. However, not everyone pays IHT; rather, an individual’s liability for IHT will depend on the total value of their estate on death.

For this tax year (2011-2012), the Inheritance Tax threshold is set at £325,000. If the total value of your estate exceeds this figure, you will be liable to pay the tax. This £325,000 threshold is known as the nil-rate band, and is the non-taxable allowance available to everyone. However, any amount above this band will be subject to IHT. Currently this means that 40% of your estate will pass to the Exchequer if you have made no mitigating provisions.

Mitigating your Liability

There are a number of exceptions, which may lead to the lessening of your Inheritance Tax liability. In the first instance, it is important to remember that there is no tax payable on transfers of assets between spouses or civil partners, regardless of the total value of the estate. This essentially means that an individual can give their entire estate to their spouse or civil partner tax-free, which is a frequent occurrence. However, this is not necessarily the most tax-efficient method of asset transfer as it only makes use of one of the couple’s nil-rate bands. More information on tax-efficient ways of passing assets between spouses and civil partners, see our article Distribution of the Estate in this section.

There are several other ways in which you can limit your liability for Inheritance Tax. As well as the nil-rate band, everyone is granted a £3,000 annual limit on tax-free gifts, meaning that you can give away assets worth up to £3,000 each year without incurring any Inheritance Tax. Furthermore, allowances are made for wedding and civil partnership gifts up to a value of £5,000, as well as gifts to charity with no upper limit. Finally, anything that is given away more than seven years before the death of the individual in question will be exempt from IHT.

The valuation of an estate for the purposes of establishing its Inheritance Tax liability must be carried out in a specific way. The most important aspect to remember is that the personal representative (that is, the individual who has been asked to handle the deceased individual’s affairs) must ensure that the value of the estate is judged as if it were going to be sold on the open market at the time that the individual died. More information on estate valuation can be found in article Valuation of Your Estate

You might also like...
Share Your Story, Join the Discussion or Seek Advice..
Why not be the first to leave a comment for discussion, ask for advice or share your story...

If you'd like to ask a question one of our experts (workload permitting) or a helpful reader hopefully can help you... We also love comments and interesting stories

Title:
(never shown)
Firstname:
(never shown)
Surname:
(never shown)
Email:
(never shown)
Nickname:
(shown)
Comment:
Validate:
Enter word:
Latest Comments
  • Pat
    Re: Payment of Pensions
    Who do I contact to change pension payments to weekly from monthly and is it easy to do regards Pat
    29 January 2020
  • Leelee
    Re: How Will My Second Job Be Taxed?
    I worked 48 hours a wk but hey paid for 44 hours a wk iv been offered a second job but only on bank would I have to pay tax…
    29 November 2019
  • Molly
    Re: Should I be Paid Mileage Allowance?
    Hi I have been changed from office based to home based by my company. I have been told I cant claim the first 30 miles of…
    20 November 2019
  • Terri2019
    Re: How Will My Second Job Be Taxed?
    Hi guys I have just started my second job my 1st job I work 21 hours at 8.35 an hour also my other job I work 35 hours and…
    8 November 2019
  • Tay
    Re: How Will My Second Job Be Taxed?
    I’m doing a Cleaning job 10hrs a week I be taking on a second job 12 hrs a week both job pay 8.21 hr how much will I get…
    6 November 2019
  • Matt
    Re: Should I be Paid Mileage Allowance?
    Hi I receive a car allowance that is paid each month alongside my salary. I also receive a mileage rate of 22p, I have…
    4 November 2019
  • Cj53
    Re: Payment of Pensions
    If change my pension from monthly to weekly can I ask for my arrears from monthly to be paid back to me when I change, thank you
    28 October 2019
  • Dan17
    Re: How Will My Second Job Be Taxed?
    Hi, thanks in advance for your help! My first job pays 18k annually (approx 1300 a month), my second, that I'm starting…
    25 October 2019
  • JellyBean
    Re: Are DVLA Car Tax Rates Fair?
    A one-litre Ford Fiesta petrol Ecoboost at the average 12,000 miles per annum, puts out exactly the same CO2 in 12 months as, for…
    18 October 2019
  • Cherral
    Re: How Will My Second Job Be Taxed?
    I am a director of my husband's company getting paid £1500 per month. I would like to have a casual 25hr job at 8.60 per…
    16 October 2019