Inheritance Tax The Basics

Inheritance tax is paid on the value of the assets that a person leaves behind when they die. It can also apply to some gifts that are made before someone dies.

When you die, your ‘estate’ is the assets you leave behind

If you are married, or have a civil partner, then you can leave your entire estate to your spouse or partner free of inheritance tax. But if you want to leave some or all of your estate to family and friends, then it may be liable for inheritance tax.

Not everyone is required to pay inheritance tax

But if the value of your estate is worth more than £325,000 (known as the ‘nil-rate band’), then HMRC will expect you to pay inheritance tax at a rate of 40% on the total value of assets in your estate over that amount.

Your estate can include:

  • Your house and any other properties you own.
  • Any savings or investments (remember, some types of pensions are excluded from your estate, but other investments, including ISAs, are taxable).
  • Any other assets.
  • The value of any life insurance policies in your name.

How to work out what your estate is worth

After adding up all your assets, your next step should be to subtract any outstanding debts. These could include credit cards, loans and mortgages. You can also deduct the value of some gifts you make during your lifetime, charity donations left in your will and the reasonable costs of your funeral.

After calculating the potential value of your estate for inheritance tax purposes:

Is the potential value of your estate less than £325,000?
Your estate isn’t facing an inheritance tax bill right now. However, it’s worth keeping an eye on the value of your assets, as any changes between now and when you die could mean an inheritance tax bill for some of the assets you leave behind.

Is the potential value of your estate more than £325,000?

Then your nil-rate band will be fully used up, and the remainder of your estate will be subject to inheritance tax.

Tax advice which contains no investment element is not regulated by the Financial Conduct Authority (FCA).

Information regarding taxation levels and basis of reliefs are dependent on current legislation and individual circumstances, are not guaranteed and may be subject to change.

For more information please contact Southern Financial Services on 01698 269 977 or email enquiries@southernfs.co.uk and we will be happy to assist you.

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Founded in 1998, Southern Financial Services is an independently owned, family company that prides itself in offering easy to understand, professional advice to clients both across Scotland and throughout the UK.