{"id":6974,"date":"2022-07-18T10:44:46","date_gmt":"2022-07-18T10:44:46","guid":{"rendered":"https:\/\/www.black-brick.com\/?post_type=guide&p=6974"},"modified":"2022-09-15T10:00:06","modified_gmt":"2022-09-15T10:00:06","slug":"inheritance-tax","status":"publish","type":"guide","link":"https:\/\/www.black-brick.com\/property-guides\/inheritance-tax\/","title":{"rendered":"Inheritance Tax (IHT)"},"content":{"rendered":"

Inheritance Tax, or IHT, is one of the four main taxes that may be paid on UK property, along with Stamp Duty Land Tax (SDLT)<\/a>, Annual Tax on Enveloped Dwellings (ATED), and Capital Gains Tax (CGT)<\/a>.<\/span><\/p>\n

As the name indicates, IHT is paid on inherited estates. This is a significant difference from SDLT and CGT, which are both paid when a property is bought or sold. For IHT, the change in ownership is brought about by the death of the previous owner, creating a unique set of circumstances.<\/span><\/p>\n

IHT is not only charged on the value of property held in an estate, but on the value of the entire estate, including personal possessions and finances. As such, IHT liabilities can be substantial, and it is important to plan estates carefully, ideally many years before the death of the individual.<\/span><\/p>\n

We can refer our clients to leading tax and financial advisors for this purpose, but you can find an introductory guide to IHT below. You can also download our full guide to associated costs <\/span>here<\/span>.<\/span><\/p>\n

Inheritance Tax<\/b><\/h2>\n

Tax on inherited estates in the UK dates back to the Stamps Act 1694, when probate duty was introduced to help fund the War of the League of Augsburg. The Finance Act 1894 replaced probate duty, as well as certain other duties, with a single estate duty. The current system has remained largely unchanged since the Finance Act 1986, with adjustments made to the headline rate of IHT, as well as the nil rate bands that may apply.<\/span><\/p>\n

What is Inheritance Tax?<\/b><\/h3>\n

In general, IHT is a tax on the value of an inherited estate. This includes property, money and possessions. Even if the value of the estate falls below the nil rate threshold, it must still be reported, despite there being no IHT to pay.<\/span><\/p>\n

What’s the current Inheritance Tax threshold?<\/b><\/h3>\n

As of 2022, IHT is payable on the portion of an estate’s value in excess of \u00a3325,000. This includes any money or possessions given away as gifts within the last seven years of the deceased’s life, as well as certain comparable circumstances, such as leasing a property below fair market value, or paying premiums on a life insurance policy for the benefit of another party.<\/span><\/p>\n

Importantly, if the estate includes a primary residence given to children or grandchildren (including stepchildren, fostered and adopted children), this threshold usually increases to \u00a3500,000. Any unused nil rate threshold can be passed to a surviving spouse or civil partner, effectively increasing their nil rate entitlement to a maximum of \u00a31 million.<\/span><\/p>\n

How is Inheritance Tax calculated?<\/b><\/h3>\n

IHT is calculated at a fixed rate of 40% on the value of the estate minus the nil rate threshold. For example:<\/span><\/p>\n