An Instant Sale – Claiming Inheritance - Will You Have to Pay Inheritance Tax?

Inheritance Tax can probably be considered a drop in the ocean to the government, as this death tax raises just over 0.5 percent of income tax revenues in the UK, a mere £2.5 billion.

However this is beginning to worry an increasing number of people and leading them to find out more about inheritance laws, as just making a will does not mean that your executors will not be left without paying taxes, and subsequently have to find a quick sale to pay the tax due on property etc.

When considering the inheritance law, it is useful to be able to distinguish between the two death taxes, inheritance and estate tax before you start estate planning and will planning.

Estate tax is a tax paid on the whole of the deceased’s estate. Inheritance tax is different as it is imposed on the individual beneficiaries who are each responsible for paying their own inheritance tax on the gifts they have received, property or otherwise.

The tax threshold before you start paying on your inheritance money is £312,000 in 2008-09 and £325,000 in 2009-10, after this taxes are payable at the rate of 40 percent.

Tax calculator

However calculating taxes is not that straightforward because if the deceased gave away any of his assets as gifts within the seven years prior to his death, then they have to be included in the value of the estate, but this may be reduced below the 40 percent level.

There are also exemptions such as charitable gifts, and property left to a spouse. Leaving all your property to your spouse doesn’t mean escaping inheritance tax in the long term and it is imperative to seek advice regarding the inheritance allowance.

It is especially important to seek advice from accountants and financial advisors, as more and more people are being drawn into the Inheritance Tax net due to the increase in house prices in the past few years.

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