In the United Kingdom, as in various other countries, many people leave their properties or estates to their loved ones. The practice of giving away their properties after death is done by the execution of the will left by the person.
Until 2015 the rate of interest charged on inheritance tax was 40%. However, with newer reforms there a relief of additional Euros has been awarded. Until 2015, the threshold for your property to be liable to inheritance tax was at £325,000.
With newer reforms, the additional relief granted for inheritance tax in the tax period of 2017-2018, is of £100,000. And this relief will continue to grow every tax year. In the year for 2018-2019 the tax benefit for inheritance tax will become £125,000, and for the year 2019-2020, the relief will increase to £150,000. And the final relief or benefit granted for inheritance tax in 2020-2021 will bump up to £175,000.
This new change came into effect in April 2017. The new reform was made in order to allow individuals to leave more non-taxable inheritance, property or estates for their relatives and people not related by blood to them.
Unlike the previous reforms, this reform’s additional relief increasingly increases annually, allowing the residents to leave more for their relatives. Furthermore, a spouse can leave some estates for their surviving spouse if the relief has not been used up. In this case, the threshold for the married couple to leave behind the estate would amount to £1 million.
However, in the case of a divorced or single individual, the threshold has been set at £500,000. Additionally, it must be remembered that this relief can be added only to the case of family houses. So, with this reform, a person with the gift of £2, will receive a benefit of £1 million.
Inheritance Tax and Its Importance
Inheritance tax and its recent reforms are of utmost importance. With a rise in the prices of the houses in the UK, it is expected that the prices will continue to rise.
The assumption that Inheritance Tax is only for the rich is quite wrong. Property here does not simply mean land or house; it also includes the articles in your possession including jewellery, investments and other things.
Basics of the Inheritance Tax
The tax is based on ascertaining the relief or portion given by an individual. One person is considered as an individual. And with the new amendment of 2017, an individual can give a tax-free inheritance of £500,000, unlike the previous limit of £325,000.
The catch with 2017-2018 Inheritance Tax Bill
Although the threshold for the amount has increased, the catch is that to avail the benefit one must transfer only the family house. And this family house is to be transferred directly to the family descendants. Plus this will be tax-free.
The rate of interest on Inheritance tax is 40%, which has remained the same since the 2010-2011 and will continue to be so until 2019.
The bill also suggests that if the house is being transferred to your children, foster children or to your grandchildren, the tax benefit will rise up to £425,000. Furthermore, if a spouse wishes to pass on their money or assets to their other spouse, they can do so, and it will be tax-free.
Although Inheritance Tax keeps a close eye on your possessions and makes you pay some taxes when you pass it on. There are some who have always been exempted from these taxes. Here is a comprehensive list of such things or possessions which are still considered tax-free:
Gifts between married couples and spouses.
Gifts to Charities.
PET or Potentially Exempt Transfers: These transfers are made seven years before the death of such person. And in this case, the person does not need to pay any taxes.
Who Pays the Inheritance Tax?
The biggest question is about who pays the tax? Well, the person passing the possessions does! However, if the person can no longer do so, or dies, the tax comes out of the estate minus the debts against the property.
Furthermore, the legal heirs of the person are also liable to pay the tax. But in the case of a gift, if the gift has been made by an individual within the ambit of seven years before their deaths, and is unable to pay so, the person who received the gift is liable to pay the tax on the gift.
Is there a Way to Avoid the Inheritance Bill?
Inheritance Bill can be avoided in some ways. Here are a few options:
Consult a specialist and think things through.
The individual can choose to distribute their possessions or choose to spend it as they see fit.
Opt for Equity Release. This scheme is quite complex and should not be opted for unless advised by a specialist.
Insurance against your property. This is the easiest way to safeguard your possessions from unwelcome bills!
Like many insurance plans, even the Inheritance Tax is a tricky thing. With newer reforms, there are higher benefits. However, everything has their limitations. To make a correct decision remember to think carefully and ask your children and legal heirs for advice. Furthermore, hire a good specialist to safeguard your possessions and to avail the maximum benefits.