If you happen to own an estate or property in UK, it is essential that you get to know about inheritance tax. Knowing and doing something about it will ensure that should there be a problem or you suddenly die, your loved ones will be safe as well as provided for. Most people consider making a will a taboo subject; however with life being uncertain, it pays to ensure that all your business is taken care of the way you want it to be.
Most assume that all the possessions and properties of a person who died without a will automatically go to their family or beneficiaries. This assumption however is wrong. When a person dies, the court will send an executor who will collect all the documents pertaining to the properties and assets of the person who died and pay all their debts. When a person’s total estate is worth more than the inheritance tax threshold of £325,000, the estate will be subjected to inheritance tax before being divided among the beneficiaries.
Inheritance tax is computed at 40% rate but can be reduced to 36% if 10% of the estate is given to charity. Computation for the tax is as follows: Total estate and asset – Expenses = Total net estate and asset x 40% inheritance tax rate = inheritance tax to be paid. The inheritance tax should be paid within 6 months starting from the end of the month the person died. If the time lapses, the inheritance tax will be subject to interest which the beneficiaries has to pay.
There are some instances when one can avoid paying the inheritance tax. One of them is when the estate or property is given as a gift to one’s spouse; another is when one makes a gift to charities, institutions and community sports clubs.
Although there are some exemptions to inheritance tax, there are set guidelines that one has to follow in order to be eligible. For those who plan to give their estate as a gift, he or she must follow the 7-year rule. The 7-year rule works when the person who gives the estate away lives 7 more years after giving the property as a gift. Another is under the “gift with reservation of benefit” wherein the giver will not be exempted from paying the tax. If you are interested to know more about inheritance tax, contact one of the solicitors or law firms in your area.
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