What Is Inheritance Tax?
It is a form of wealth tax, which may be paid on your estate when you die, or, in some circumstances on lifetime gifts you make. Unfortunately, mainly due to the large increase in the value of houses, it is no longer a tax only paid by the wealthy.
How much would I have to pay?
Broadly speaking, on your death a value is put on everything you own. You pay 40% tax on everything over what is known as the Nil Rate Band (£325,000 for the 2012-2013 tax year). Spouses and civil partners now have the ability to pass on their unused Nil Rate Band to the survivor when the first dies and so effectively have double the Nil Rate Band.
If the tax is paid on everything I own why can’t I just give everything away before I die?
The government have put in place complicated rules regarding lifetime gifts. In some circumstances assets never stop being regarded as yours for inheritance tax purposes, even if you have given them away. Other times they may still be counted as yours if you die within 7 years of making the gift. In other circumstances there may be an immediate charge to inheritance tax on making the gift even though you are still alive.
Is there anything I can do to avoid or reduce Inheritance Tax?
Yes, there are lots of different things you can do depending on your circumstances. Most solutions will involve making gifts, but the terms of such gifts can vary significantly depending on your needs and objectives.