An increasing number of people are becoming liable to inheritance tax (IHT) because of the increase in property prices from the early 1980s to 2007. IHT applies to your entire worldwide estate (including property) and is charged at 40 per cent. But you also need to add in the value of savings, investments and chattels (such as antiques, jewellery and paintings) to estimate the entire value of your estate.
Planning ahead for when you die allows you to set out clearly who should get what from your estate. It also means you can maximise IHT reliefs and exemptions if your estate might be worth more than the IHT threshold when you die (£325,000 in 2010/11).
Making a will and being sure people know where to find it is the first step to ensuring that your estate is shared out exactly as you want it to be when you die.
If you don’t leave a will, your estate will be shared out among your next of kin according to a strict order of priority called the ‘rules of intestacy’. This means that people you want to benefit from your estate, such as a partner you’re not married to or in a registered civil partnership with, might get nothing. The rules are different in Scotland.
Gifts are treated in a number of ways for IHT purposes. However, you only need to worry about making gifts if you think your estate, including the value of any gifts you make, might exceed the IHT threshold when you die. If your estate is over the threshold, any gifts you make more than seven years before you die will be exempt from IHT.
There can be tax implications if you give your home away to your children or someone else, especially while you’re still alive. If you give your home away and continue to live in it, your estate or the person you gave your home to might still have to pay IHT on the property when you die, as well as other taxes.
You can also use a trust to pass assets on to others, for example to those who aren’t immediately able to look after their own affairs, such as your children. Gifts into a trust may still be subject to IHT if your estate, including the amount being transferred, is over the IHT £325,000 threshold.
