We all work hard and long hours to provide a great life and future for ourselves and our children and one thing that burns a lot of people’s blood is the concept of inheritance tax.

Inheritance Tax is paid if a person’s estate (their property, money and possessions) is worth more than £325,000 when they die. This is also called the Inheritance Tax threshold. The rate of Inheritance Tax is 40% on anything above that threshold. However, this rate may be reduced to 36% if 10% or more of the estate is left to charity.

Being young and not having any children I do wonder what will happen if and when I decide to have a family? How will I ensure that my children get the most out of what I leave them? Will my assets be able to be passed onto them? Most importantly will they get hit with an extortionate IHT bill (Not that I have a set of oil wells or anything! But these things do play on my mind).

Today, I was joined by Mahender Pattni, a Fellow of the Institute of Chartered Accountants in England and Wakes (FCA). He qualified as a Chartered Accountant in 1980 and is a member of RMR Partnership LLP, which provides advisory, accounting and taxation services to SMEs and individuals.

Mahender said each person had a limit of £325,000, however, if a person’s spouse was to pass away their IHT limit would hit £650,000. This nuance was only applicable for married couples and not for singletons.

Mahender emphasised the importance of having a will and said that each person must look into writing a will irrespective of their age to avoid any issues in their family member inheriting their property.
While we do know that Inheritance Tax is the tax which is payable on one’s estate when one dies, what exactly does estate include? Estate includes your home, your car, your bank accounts, investments and anything else in your name.  It also includes gifts made during the seven years before your death.  Whether inheritance tax is payable will depend on a number of factors such as the current inheritance tax threshold, any gifts you’ve made in the past seven years, and whether your spouse or civil partner is inheriting all or part of your estate.

Some tips to keep in mind:

  1. Be sure to make a will
  2. Be aware of inheritance tax exemptions
  3. Get advice about “gifts”
  4. Look into life insurance policies that will cover your IHT bill if there is ever need to pay upon your death.