Q - Can I reduce the amount of Inheritance Tax payable on my estate?
- Inheritance tax at 40 per cent is payable on your estate after your death if the estate is worth more than £300,000 for 2007-8 threshold (£312,000 for 2008-9 and £325,000 for 2009-10, £350,000 2010-11) after debts have been paid. (See the latest Rates and Allowances for Inheritance Tax on HM Revenue & Customs website.)
- If you leave your estate to an ‘exempt beneficiary’, such as your spouse, registered civil partner or charity, you may reduce or even avoid paying this
tax.
Example 1: On an estate worth £315,000, £15,000 would be liable to inheritance tax at 40 per cent, with the Inland Revenue taking £6,000. However, if the residue of the estate above the tax threshold of £300,000 was left to the Woodland Trust, then no inheritance tax would be payable at all. So essentially the Woodland Trust would receive £15,000 and the Inland Revenue nothing.
Example 2: On an estate worth £515,000, £215,000 would be liable to inheritance tax at 40 per cent, with the Inland Revenue taking £86,000. However, if £80,000 was left to the Woodland Trust, then the taxable estate would be
reduced to £135,000, which in turn reduces the amount of tax payable to £54,000. So the £32,000 which would have gone to the Inland Revenue now comes to the Woodland Trust.
Please note that exemptions are available depending on each estate’s circumstances. These figure are calculated as illustrations only.
- Any gift left to a charity in your will, including the Woodland Trust, is currently free of inheritance tax. Charitable gifts are deducted from your estate before your inheritance tax is calculated.
- If the exempt gift(s) brings the total value of your estate to below the tax threshold, your remaining estate will not be liable for inheritance tax.
- Inheritance tax can dramatically reduce the value of an estate, so charitable gifts can often be made with little effect on the value of the estate left to other beneficiaries.
Q - I am leaving my estate to my grand-children - can you suggest a way round paying Inheritance Tax?
- One way of reducing or even avoiding paying inheritance tax is to leave assets up to the value of the “nil tax” rate band to a non-exempt beneficiary such as your grandchildren and leave the remainder to an exempt beneficiary such as your spouse, registered civil partner or charity.
- Expert advice should be taken to consider your individual requirements and suggest the best options available to you.
Beneficiaries
Codicils
Registered charity number
Executors
Gifts of Land
Marital/Civil Partnership Status
Restricted Legacies
Pecuniary vs Residue
Value of a legacy
Wills and Witnesses
Overseas