A combination of rising house prices and a freeze on the threshold at which estates pay inheritance tax means that many more households fall into the tax net than was once the case. With some simple planning, it is possible to keep your inheritance tax liability to a minimum.
Currently each person has an inheritance tax allowance of £325,000 on which no inheritance tax is paid. This is called a nil rate band. This allowance is transferable between spouses, so a married couple can give away a total of £650,000 tax free when they die. Anything over the nil rate band is charged to inheritance tax at 40 per cent unless any of the following apply:
• spouse exemption – gifts between married couples or civil partners do not attract inheritance tax;
• charity exemption – any amount can be gifted to a UK registered charity free of inheritance tax; and
• business property relief and agricultural property relief – inheritance tax is either not payable or reduced on certain business and farming interests.
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