When it comes to estate planning, one of the most important things to understand is the concept of exempt transfers.
Exempt transfers are those which are not subject to inheritance tax, and can save your loved ones a lot of money when you die.
In this article, we will explain what exempt transfers are and how they work. We will also discuss the gift tax, and how it relates to inheritances.
So if you’re curious about Inheritance Tax in the UK, be sure to read on!
What is Inheritance Tax?
In the United Kingdom, Inheritance Tax is a tax that is levied on the estate of a deceased person. The estate consists of all of the deceased person’s assets, including their property, possessions, and money. If the value of the estate exceeds a certain amount (currently £325,000), then inheritance tax must be paid.
How Does Inheritance Tax Work?
Inheritance Tax is calculated based on the value of the deceased person’s estate.
The tax rate is currently 40%, which means that for every £100 of the estate’s value, £40 must be paid in inheritance tax. So, if an estate is valued at £500,000, the inheritance tax bill would be £200,000.
How can I Reduce my Inheritance Tax Bill?
There are several ways to reduce your Inheritance Tax bill, including:
- Making use of Exempt Transfers
- Giving gifts during your lifetime (up to the annual exemption limit)
- Making use of Business Property Relief
If you are planning on giving gifts during your lifetime, it is important to keep track of the value of the gifts so that you do not exceed the annual exemption limit. The current exemption limit is £3000 per year.
What is the Gift Tax?
The Gift Tax is a tax that is levied on gifts made by individuals during their lifetime. The rate of the gift tax is currently 20%, which means that for every £100 worth of gifts given, £20 must be paid in tax.
So, if an individual gives £500 worth of gifts during their lifetime, the gift tax bill would be £100.
What are Exempt Transfers?
Exempt transfers are those which are not subject to inheritance tax. There are several different types of exempt transfers, including:
- Gifts to a spouse or civil partner
- Gifts to charities
- Gifts made more than seven years before the donor’s death
Why are Exempt Transfers Important?
Exempt transfers are important because they can save your loved ones a significant amount of money in inheritance tax.
For example, if an estate is valued at £500,000 and the deceased person has made exempt transfers totaling £325,000, then the inheritance tax bill would be reduced to £50,000. This can make a huge difference for families who are already grieving the loss of a loved one.
The Bottom Line
This article has provided an overview of Inheritance Tax in the UK, including how it works and how to reduce your Inheritance Tax bill.
Making use of Exempt Transfers and giving gifts during your lifetime are two great ways to reduce your Inheritance Tax bill.
However, it is important to consult with a financial advisor to ensure that you are taking advantage of all of the available exemptions and reliefs.
To know more, get in touch with us today.
