All About Inheritance Tax

Written By: Simon P Jennings on November 8, 2009 No Comment

Tax paid by individuals or families who have inherited something from a deceased person, is known as inheritance tax. It is paid by the heirs after the death of a particular individual, whose property, or estate is passed on.

People are usually under the misconception that inheritance tax, and estate tax are the same. However, this is not true, since the inheritance tax is not levied on the entire estate; it is only to be paid on the relevant property, which is passed on as inheritance. Even now, in some countries like the UK, not many can comprehend the difference between the two. Death Duty is another name for inheritance tax.

Anything of value, which is part of an inheritance, has inheritance tax applied on it. This can consist of property, jewellery, collectable items, and even non-physical assets, like investments, and life insurance. Inheritance tax is levied on inheritances worth 325,000, or more in the UK. In lieu of death, the next surviving family becomes responsible for the inheritance tax, since they become property owners. Moreover, the beneficiary can be specified in the will, which then becomes responsible.

A person is exempt from paying inheritance tax in some instances. If a UK citizen has lived outside the country for more than three years during a twenty-year tax period, then he is not liable for paying this tax. In addition, if the assets are overseas, there is no tax charged on them.

If a person handed down a property to someone at least seven years before his death, then there is no tax levied on that property. Similarly, if a property or assets are relocated to spouses or children, they exempt from taxes. Moreover, there is no inheritance tax charged on life insurance policies for children.

People usually tend to criticise inheritance tax, believing that it is unfair to place this burden on the family of the deceased who has already gone through a loss. The tax tends to be high, sometimes even being around forty to fifty percent of the total asset value. Therefore, the significance of implementation of inheritance tax planning to lessen this burden should be stressed upon.

There are many ways to reduce inheritance tax. Firstly, it is important to write a will, and specify who your heirs are, so that there is no confusion later on. It is also a good idea to transfer your estate into life insurance funds, or trusts on which, tax does not have to be paid. In this way, the spouse as well as the further generations can benefit from your estate. They will receive regular income without the burden of the tax, as they will not own the entire estate.

It might also be a good idea to engage your money in investments that are charged with a lower tax rate. Utilise the annual allowances granted to you with gifts. Regular gifts made from your estate are exempted from taxes, thus you can help your family without the trouble, and hassle of inheritance tax.

Simon P Jennings is a personal insurance consultant. Take professional services to learn how to avoid Inheritance Tax Trust from your property at http://www.claimsadvicecentre.com.