Inheritance Tax is simply a tax on the estate of someone who has died. An estate includes someone’s money, personal possessions, property and any other assets such as shares, cryptocurrency and vehicles. The standard Inheritance Tax rate is currently 40%, which is charged on anything above £325,000 (the standard threshold amount). 

Only 1 in 20 estates in the UK need to pay Inheritance Tax – but how do you know if you’re one of them? We take a look at when you need to pay Inheritance Tax, when you don’t need to pay it and some legal ways to reduce your Inheritance Tax bill or avoid it altogether. 

There are several ways you can determine whether or not you or the beneficiaries of your estate need to pay Inheritance Tax. The current threshold for paying Inheritance Tax is £325,000. But if you decide to give your home to your children or grandchildren, this threshold can jump up to £500,000, meaning your loved ones will pay less inheritance tax if applicable. 

In most cases, if you’re planning to leave everything to your spouse or civil partner, or if you leave everything to an exempt beneficiary, you won’t need to pay any Inheritance Tax. 

There are ways you can reduce, if not completely avoid, paying Inheritance Tax. 

We’ve outlined some of the methods of reducing your Inheritance Tax bill in the table below, along with some of the conditions you may need to meet:

If you don’t pay Inheritance Tax when required to do so, you could be liable for certain penalties. Missing an Inheritance Tax deadline, for example, means you will have to pay interest on the amount owed. There are also penalties ranging from £100 to over £3,000 for late payment of Inheritance Tax.  

A penalty can also be imposed if any information provided is inaccurate. The level of the penalty depends on the type of mistake made (i.e: genuine human error, carelessness, deliberate, concealed and so on). The highest penalty that can be given for inaccurate information is 100% of the tax due, as well as the tax amount itself. 

While our blogs shouldn’t be construed as a replacement for actual legal advice, our team can certainly help you. Please contact our Private Client team for legal help and advice: