Wills: Blog

Under British law, inheritance tax is charged to a person’s estate following their death and can be summarised as following:

1. No inheritance tax is payable on the first £325,000 of your estate. This is called the nil rate band, if the value of your assets exceeds this amount, the excess value will be liable to a 40% tax liability unless those assets are left to a spouse, civil partner or charity. This is known as an ‘exempt’ transfer.
2. Under an exempt transfer your spouse, civil partner or charity will inherit your estate free of tax. Its worth remembering that unless you make a will your estate may not automatically pass to your spouse and inheritance tax may be applied. This tax benefit may only be used on the death of the first spouse/civil partner. In addition to this, the surviving spouse/partner can also benefit from a transfer of the first partners nil rate tax band. Effectively this means married couples and registered civil partners will not pay tax on the first £650,000 of their estate. Tax is again then payable at 40% on any amount over this. It is therefore tax effective for couples to leave everything to each other and then to their children.
3. Any gifts you make to individuals are exempt from inheritance tax provided that you live for seven years after making the gift. However if you make a gift but then continue to have an interest in it (for example, you give away a house but then live in it rent free) this gift would be added back into your estate and would be liable to inheritance tax. If you died within the seven year threshold, inheritance tax is reduced after three years on a sliding scale to provide you with some relief. This is known as ‘Taper Relief’.

It is strongly advised to consult a solicitor or use a reputable online will writing service when making a will.