Inheritance Tax Planning

Whose wealth is it anyway?

Inheritance tax (IHT) is a tax collected by the Government on any transfer of assets to other people or trusts. It is commonly paid in respect of an individual's estate on death, but it can also be applied in respect of certain transfers of assets during life.

At present, IHT is payable at 40% on all of an individual's estate above a designated threshold - £325,000 (for 2009/10). You don't have to be overly wealthy to achieve this threshold. In today's property climate, your house alone may account for all of this figure.

By use of careful planning you can ensure that IHT is reduced or eliminated altogether - allowing your hard-earned wealth to be passed to your family without the taxman taking a large chunk!

Who is liable for inheritance tax?
It is a mistaken assumption that you need to be particularly wealthy to incur a substantial inheritance tax liability. When you die, the value of your taxable estate is calculated. This is the total value of all your possessions and assets, less any available exemptions and relief. If the taxable estate exceeds the nil rate band of £325,000 (for 2009/10), anything over that sum is taxed at 40%.

The Government introduced a new provision in October 2008, which helps married couples and registered civil partners. For those people, if they have a spouse or partner who predeceased them, they can also inherit any of the nil rate band that was unused on that spouse or partner's death. This means that they could be entitled to up to £650,000 as a nil rate band (for 2009/10).

However, there is only one tax band; with inheritance tax everyone is a higher rate taxpayer.

We have shown some examples of the impact of the tax below. Alternatively, use our tax calculator to work out what the impact would be on you.


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Tax Calculator

  Single or divorced people Where a full nil rate band transfer is available
Size of estate Inheritance Tax Net Estate % of Estate Lost in Tax Inheritance Tax Net Estate % of Estate Lost in Tax
£325,000 £0 £325,000
0.0%
 £0 £325,000
0.0%
£350,000 £10,000 £340,000
2.9%
 £0 £350,000
0.0%
£375,000 £20,000 £355,000
5.3%
 £0 £375,000
0.0%
£400,000 £30,000 £370,000
7.5%
 £0 £400,000
0.0%
£425,000 £40,000 £385,800
9.4%
£0 £425,000
0.0%
£450,000 £50,000 £400,000
11.1%
£0 £450,000
0.0%
£475,000 £60,000 £415,000
12.6%
£0 £475,000
0.0%
£500,000 £70,000 £430,800
14.0%
£0 £500,000
0.0%
£550,000 £90,000 £460,000
16.4%
£0 £550,000
0.0%
£600,000 £110,000 £490,000
18.3%
£0 £600,000
0.0%
£650,000 £130,000 £520,000
20.0%
£0 £650,000
0.0%
£700,000 £150,000 £550,000
21.4%
£20,000 £680,000
2.9%
£750,000 £170,000 £580,000
22.7%
£40,000 £710,000
5.3%
£800,000 £190,000 £610,000
23.8%
£60,000 £740,000
7.5%
£850,000 £210,000 £640,000
24.7%
£80,000 £770,000
9.4%
£900,000 £230,000 £670,000
25.6%
£100,000 £800,000
11.1%
£950,000 £250,000 £700,000
26.3%
£120,000 £830,000
12.6%
£1,000,000 £270,000 £730,000
27.0%
£140,000 £860,000
14.0%
£1,250,000 £370,000 £880,000
29.6%
£240,000 £1,010,000
19.2%
£1,500,000 £470,000 £1,030,000
31.3%
£340,000 £1,160,000
22.7%
£1,750,000 £570,000 £1,180,000
32.6%
£440,000 £1,310,000
25.1%
£2,000,000 £670,000 £1,330,000
33.5%
£540,000 £1,460,000
27.0%
£2,250,000 £770,000 £1,480,000
34.2%
£640,000 £1,610,000
28.4%
£2,500,000 £870,000 £1,630,000
34.8%
£740,000 £1,760,000
29.6%
£2,750,000 £970,000 £1,780,000
35.3%
£840,000 £1,910,000
30.5%
£3,000,000 £1,070,000 £1,930,000
35.7%
£940,000 £2,060,000
31.3%
£3,250,000 £1,170,000 £2,080,000
36.0%
£1,040,000 £2,210,000
32.0%
£3,500,000 £1,270,000 £2,230,000
36.3%
£1,140,000 £2,360,000
32.6%
£3,750,000 £1,370,000 £2,380,000
36.5%
£1,240,000 £2,510,000
33.1%
£4,000,000 £1,470,000 £2,530,000
36.8%
£1,340,000 £2,660,000
33.5%
£4,250,000 £1,570,000 £2,680,000
36.9%
£1,440,000 £2,810,000
33.9%
£4,500,000 £1,670,000 £2,830,000
37.1%
£1,540,000 £2,960,600
34.2%
£4,750,000 £1,770,000 £2,980,000
37.3%
£1,640,000 £3,110,000
34.5%
£5,000,000 £1,870,000 £3,130,000
37.4%
£1,740,000 £3,260,000
34.8%

More impartial information
For general information on inheritance tax, click here to visit the HM Revenue & Customs website.

The information regarding taxation is based on our understanding of current legislation, which may be altered and depends on the individual financial circumstances of the investor.

 

 

Page last updated July 22, 2009 ID2010