Inheritance tax (IHT) is charged on the value (assets less liabilities) of a person’s estate on death. The first £325,000 is exempt (the ‘nil rate band’) and the balance is taxed at 40%.
Inheritance tax planning – property
• Transfers between spouses/civil partners are exempt from IHT, therefore, if property is left to the surviving spouse/civil partner there will be no IHT due on the first death but may be on the second death.
• If a gift of property is made to someone who is not married or in a civil partnership with the donor, the transfer is termed a ‘potentially exempt’ transfer and will only be chargeable to IHT should the donor not survive seven years. This exemption will not apply if the property gifted has conditions attached (termed a ‘gift with reservation of benefit’- see Tip 84) or was originally the donor’s property (‘pre-owned asset’- see Tip 85).
• Property placed within a ‘Mainstream’ trust does not form part of the donor’s estate on death and as such reduces any IHT that may become due.
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