Current Inheritance Tax regulations- a quick look
Current Inheritance Tax regulations- a quick look by Kristina Kennedy-Aguero
Current Inheritance Tax regulations came into effect on January 1st 2022. They include simplifying the process and reducing physical paperwork. You can now process most requirements directly online. The government website gives full instructions on how to proceed with the estate after someone's death.
Thresholds under current Inheritance tax regulations
In January 2021 the value threshold of an estate before inheritance tax is due increased from £150,000 to £250,000. It currently stands at £325,000. That means that if the estate's total worth does not exceed this figure, there is no inheritance tax to pay. The current inheritance tax rate on the value of the estate above this figure is 40%. So, if the estate is worth £500,000 you will pay 40% of the £175,000 which is above the tax-free threshold level. That means that you will have to pay £70,000 in Inheritance Tax. You will not have to pay this if you are leaving everything above the threshold to your spouse or registered civil partner. Also if it is going to an amateur community sports club or to a charity.
Tax-free threshold increases
If you are giving your house to your children or grandchildren your threshold may increase to £500,000. In this case, "children" includes foster, adopted, and stepchildren. This increase only applies to estates with a total value of less than £2-million. If your estate has a value of less than the tax-free threshold, this passes on to your spouse or registered civil partner after your death. That means, that if you pass on your £500,000 estate to your civil partner there is no tax to pay when you die. When your partner dies, there will be no tax to pay. This is because the combined tax-free thresholds will be £750,000 (2x £325,000). So, the estate's value is below this increased threshold.
Gifts, and current Inheritance Tax regulations
You may have to pay Inheritance tax on any assets made as gifts during the seven years prior to death. Additionally, recipients of gifts received within seven years of death may be liable to pay inheritance tax. This applies if the deceasmore than in excess of £325,000 during that period. Whether you must pay Inheritance tax depends on who is the recipient, what was the value of the gift and when given.
Different tax rates apply depending on how many years before death the gift occurred. Regular payments made to assist anther person with their livign costs are not ususally counted as gifts and do not count towards the £3000 per year tax free gift allowance.
Gifts to a spouse or civil partner, a charity or a political party are all tax-free.
"Gifts" include money, property or land, antiques, furniture or jewellery, stocks or shares.
What you leave in your will to people does not count as gifts but forms part of the estate.
It is necessary to work out the value of the estate to see if Inheritance tax is due. You must pay the taxes due to HM Revenue and Customs (HMRC) before applying for probate, (see previous blog). This is usually done by the executor of the will or the person dealing with the estate.
