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Our Inheritance tax advisors at Taxaccolega help you mitigate your inheritance tax bill so you and your family can enjoy the assets you earned throughout your lifetime. Our seasoned accountants with years of experience with personal taxes will discuss with you the options you have to give gifts to your family so they also pay minimum taxes and get the maximum financial benefit.

What is Inheritance Tax?

Inheritance tax is a potential tax levied on the estate (property, money and possessions) of a person who has passed away. The inheritance tax is paid by the executor (the person dealing with the estate if there is a will) or by his beneficiaries (people who inherit your estate).

Inheritance tax is paid on the estate of the deceased if the net value of the estate is more than £325 000 (the net value is the value of the estate minus any debts).

There is no inheritance tax if the estate is passed to your spouse, a charity, or community amateur sports club even if its value is more than £325 000.

If you pass your home to your children including adopted, foster, and stepchildren, your inheritance tax threshold will increase to £500 000. However, they might have to pay other taxes such as income tax etc. If you need tax advice on taxes such as inheritance tax or other taxes such as capital gains tax or personal taxes, contact our expert inheritance tax accountants.

How is Inheritance Tax Calculated?

Inheritance tax is calculated on the part of the estate which crosses the threshold of £325 000. The assets which are worth more than £325 000 will be taxed at 40%. For example, if your estate is worth £600 000 and tax free threshold is £ 325 000. The inheritance tax will be charged on £275 000 (£600 000- £325 000 ) at 40%.For example if your estate is worth £550 000 and your IHT is 325 000, the tax will be charged on 225 000 (550 000 – 325 000). The IHT calculated will be 90 000.

Ways To Reduce or Avoid Inheritance Tax

Inheritance tax is paid by the family of the deceased who has left the estate above the threshold value after subtracting funeral costs and debts. However, there are ways to reduce or completely avoid inheritance tax. Some of the ways are discussed below:

1. Giving Gifts

● Giving Gifts To Spouses or Civil Partner:

If you are married or in a civil relationship you can give gifts to your spouse/civil partner without having to worry about inheritance tax (or capital gains tax). There is no limit to the amount of assets that you transfer to your spouse during your lifetime. If you pass all of your estate to your partner, the partner won’t have to pay any Inheritance tax because a gift given to a spouse/civil partner is exempted from Inheritance tax. The surviving partner will be allowed to use both tax free allowance. For 2024/2025, the annual allowance is £325 000, the surviving partner will inherit the annual allowance of their partner and they will be able to have an estate worth £650 000 without having to pay any inheritance tax.

However, you will only be allowed to transfer your assets or possessions to your spouse/civil partner if the following 2 conditions are met:

1:Your spouse/civil partner lives in the UK permanently

2:He/she is legally married or in a civil partnership with you

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Giving Gifts To Charities Or Political Parties:

If you want to reduce the value of your estate, so your family has to pay minimum or no inheritance tax when you pass away. You can give some of your assets and possessions to charities or political parties. This is completely tax free.

Giving Gifts Within Your Annual Tax Free Allowance

Each year you can give a gift worth £3000 without it being added to your estate. You can give it to anyone in your family / friends. You can give a gift worth £3000 to one person or to different people, if the total of all gifts is £3000 or less no inheritance will need to be paid,

Giving Small Gifts Each Year

You can give small gifts of up to £250 per person each year, but you have to make sure that you have not used another allowance on the same person. You can give generously on birthdays and christmas, provided you stay within the limits of allowance you won't have to pay any Inheritance tax

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Giving Gifts On Wedding Or Starting A Civil Partnership

Giving gifts to friends and family at their wedding is another way to distribute your wealth. There are certain allowances as to how much you can give to a particular family member or a friend/relative without incurring any inheritance tax. The rules are as follows:

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Child:

You can give a wedding gift of up to £5000 to your child.

Grandchild / Great Grandchild:

You can give a wedding gift of up to £2500 to your grandchild or great grandchild.

Any other family member / friends:

you can give up to £1000 to any other person.

You Can Make Regular Payments Out of Your Normal Income.

If you think you can make regular payments to someone from your monthly income towards their cost of living and it will not affect your lifestyle. These are called “normal expenditure out of income”.

This can include:

Paying in your child’s saving account

Paying your child’s rent.

Paying for your child’s education.

You should maintain a record when making these regular payments so you have the evidences for the exemptions. According to HMRC guidance, you should keep a record of the following:

1. Frequency

2.Amount given

3.Nature of the gifts

4.The identity of the receiver

5.Reason of the gifts

Make sure you have proper evidences of your income and your spending patterns to establish normal expenditure out of income payments’ exemptions.

1. Making Use of Exemptions:

● Taper Relief:

When you give a gift, you become eligible for inheritance tax exemption depending on the timing of the gift.

You won’t have to pay any Inheritance tax if you made a gift and you die after 7 years of giving the gift.

If you die within 3 years of making a gift you will have to pay Inheritance tax at 40%

If you die after 3 years up to 7 years you are eligible for taper relief.

Taper relief is only available if you make a gift of above £325 000 (to anyone other than your spouse or civil partner)and you die within 7 years of making that gift.

The tax rates in taper relief is as follows:

Year between gift and death	Rate of Inheritance tax (%)
3-4 years	32
4-5 years	24
5-6 years	16
6-7 years	8
7 or more	0

When Do You Have To Pay Inheritance Tax?

You should be aware of the following deadlines:

● You should start paying your inheritance tax by the end of the sixth month after the person died and before the probate.

● You should send inheritance tax forms within one year

If you need inheritance tax advice, please do not hesitate to call Taxaccolega, specialized inheritance tax accountants, in croydon surrey.

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Phone Number

020 8127 0728

074 7117 0484

Email

[email protected]

Address

187a London Road, Croydon, Surrey, CR0 2RJ

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FAQs

1. Can I appeal an Inheritance Tax Assessment?

Yes, you can appeal to HMRC if you think that the inheritance tax calculation is incorrect.

2. How can I get help with my Inheritance Tax issues?

You can seek professional advice from solicitors and accountants. Our specialized accountants at Taxaccolega can help you give inheritance tax advice by advising on how to manage your property and possessions during your lifetime. By managing your assets, you can enjoy the benefits from your assets while minimizing the tax burden from your family

3. Can Inheritance Tax be paid in installments?

Yes, inheritance tax can be paid in installments. If you intend to pay inheritance tax in installments you have to say it in the inheritance tax account form IHT 400. You might have to pay interest on the installments. You can contact Taxxaccolega, inheritance tax accountants in the UK to seek advice on inheritance tax payments.

4. How do I know Inheritance Tax needs to be paid?

To find out if you need to pay any inheritance tax, you have to estimate the value of the money, assets and possessions (this will include any shares). You should also know if there was any mortgage or any unpaid loans. You can find the guidance on HMRC website.

5. Do I have to report the value of the estate even if no Inheritance Tax is due?

I should use s

Yes, you might have to report the value of the estate even if no inheritance tax is due and this depends on a number of factors. The guideline is given on HMRC website.

However, you don’t need to give full details of your estate if

The estate counts as ‘excepted estate’
There is no inheritance tax to pay

● None of the factors apply to you under which you have to report the full details of your estate.tatutory accounting software because it allows streamlining preparation and avoids lengthy completion times for the business, hence giving an increased response to changes in market activity or demand.

It will save you more time by reducing errors while making your accounts because statutory accounting software ensures all statutory reporting requirements will be complied with and simplifies the filing process.

6. What happens if I give my house to my children and continue to live in it?

If you continue to live in your house which you have given as a gift to your children, your house will still be counted towards the value of your estate and inheritance tax will be due on it.

If you have any inheritance tax queries, please don’t hesitate to contact Taxaccolega, accountants in croydon, Surrey, UK and our specialised accountants will be happy to help you.