Sunday, February 05, 2006

What is Inheritance Tax? (IHT)

A report by Scottish Widows Bank has revealed that 1/3 of families face potential Inheritance Tax (IHT) liabilities.

So what is IHT?

When a person dies & they don’t have a husband or wife to pass on their assets to, the person who inherits the money becomes liable. When one member of an elderly married couple dies, the assets become the property of their partner. However when the partner dies, their children are often faced with a sizeable tax bill.

What assets are taxable? What is the estate?

For tax purposes the assets of the deceased person are called their estate.
This includes everything owned in the dead person’s name or jointly owned.

Why is it important?
If the the estate is over £275 000 (2005-2006 tax year), then anything over that is taxed at 40%

Eg £1million pounds of assets.
Then 1 000 000 -275 000= £725 000 is liable for tax
Tax=725 000 X40%=290 000

Clearly with current levels of house prices it is an important issue

What should I do about Inheritance Tax?

1 Consider the possibility of IHT
2 Consult a professional (IFA, tax consultant)
3 Take Action

In the next instalment, we’ll look at what action can be taken.
To be continued

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