What is Inheritance Tax?

Inheritance Tax (IHT) is a tax paid to the Government when you die on the value of everything you own. If the total value of your assets is less than £325,000 (2009/10 tax year), at present there won't be any IHT to pay.  This is known as the "nil rate band" i.e. from £0 - £325,000.  Since October 2007, a surviving spouse or civil partner will be able to carry forward any unused nil rate band allowance to their own estate, leading to a potential maximum of £650,000 before Inheritance tax is payable.

Every penny above £325,000 could be taxed at an eye watering 40%.

The Chancellor usually sets the nil rate band for IHT and the rate of tax each year in the budget.

Examples (2009/10 tax year)

	Estate 1	Estate 2	Estate 3	Estate4
Estate Value	£500,000	750,000	£1,000,000	£2,000,000
Amount of estate potentially liable to IHT	£175,000	£425,000	£675,000	£1,675,000
Tax bill (IHT) payable at 40%	£70,000	£170,000	£270,000	£670,000

Figures assume that no Wills or IHT planning has been put into place.

Does Inheritance Tax affect me ?

Rapidly increasing house prices have meant that far more people are now affected by Inheritance Tax than used to be. When you add up the value of all your possessions, your house, car, furniture, etc, your estate could be worth more than you realise.

Why is IHT a problem ?

Not only could your family and friends receive significantly less, but any IHT owed must be settled before your assets can be released. This could mean there is a delay in receiving their inheritance. This can place an extra burden for your loved ones when they are going through the grieving process.

Who is in charge of paying Inheritance Tax?

Your executors are responsible. If you've chosen members of your family for this task this could mean even greater stress for them at a difficult time.