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When a person who lives in the UK dies, it may be that their estate is subject to Inheritance Tax. Their estate means things such as their money, property, and possessions. The standard
Inheritance Tax rate is, at the time of writing, 40 per cent. However, it is only charged on the part of the estate which is above the threshold. Currently, the threshold for Inheritance Tax
is £325,000. Should the value of the estate be below this threshold, then there’s normally no Inheritance Tax to pay - however it should still be reported to HM Revenue and Customs (HMRC).
A person may leave everything above the £325,000 threshold to their spouse, civil partner, a charity, or a community amateur sports club. In this situation, there is usually no Inheritance
Tax to pay either. It is possible to increase the threshold by giving one’s home to their children or grandchildren. This can see the threshold rise to £475,000. Similarly, if a person who
is married or in a civil partnership has an estate worth less than the threshold, then any unused threshold may be added to their partner’s threshold when the individual dies. This means
that the partner’s threshold can reach as much as £950,000. Should a person leave 10 per cent or more of the net value to charity in their will, then the estate can pay Inheritance Tax at a
reduced rate of 36 per cent on some assets. The Gov.uk tool “Inheritance Tax reduced rate calculator” may be used in order to work this out. Inheritance Tax must be paid by the end of the
sixth month after the person died, although the government explain that there are different due dates if payments are being made on a trust. Some people may qualify for Inheritance Tax
relief or exemptions. What Inheritance Tax is charged on gifts? While some gifts count towards the value of one’s estate, others may be given to loved ones during their lifetime. A person
can give away £3,000 worth of gifts each tax year - so between Aril 6 to April 5 - without them being added to the value of their estate. This is known as the annual exemption. A person can
carry any unused annual exemption forward to the next year, but only for one year. There are others gifts which may also be exempted in the same tax year, such as wedding or civil ceremony
gifts, birthday or Christmas presents with wouldn’t affect the giver’s standard of living, gifts to charities or political parties, and payments to help with another person’s living costs.
READ MORE: INHERITANCE TAX ON GIFTS: WHAT IS TAPER RELIEF? HOW MUCH CAN YOU GIVE FAMILY EACH YEAR?