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inheritance tax calculator

The Chancellor announced in his budget that from 6 April 2007 the limit on which inheritance tax is payable has been increased from £285,000 to £300,000.

To help illustrate your possible inheritance tax liability, you can complete the table below. Further information on inheritance tax follows after the table.

Information on Inheritance Tax

Inheritance Tax Act 1984

(Rates from 6 April 2007)

Inheritance Tax is charged on the value of a person’s estate on death and on certain lifetime transfers.
Rates of Tax

On the first £300,000 - nil rate (known as the Nil Rate Band)
Over £300,000 - at 40%.

Unless immediately exempt, most lifetime gifts will be potentially exempt transfers (PETs). If a PET is made and the donor lives for 7 years usually no inheritance tax is payable on the value of the gift. (This is complicated if a number of gifts have been made.)

If the donor dies within 7 years of the gift, the value of the gift is taken into account in calculating inheritance tax chargeable on his estate.

If death occurs between 3 and 7 years from the date of the gift, relief is available as a percentage of the tax charged on the gift. However if no tax is charged on the gift because it was within the nil rate band no relief is given and the gift uses up part of the nil rate band.

On death the value of assets in your estate are added together and if the total net value (taking into account certain gifts within 7 years of death) exceeds £300,000 inheritance tax may have to be paid.

EXEMPTIONS

The main exemptions from IHT are as follows (this is not an exhaustive list):

1. Transfers during life or on death between husband and wife are exempt. This may not be the case if one spouse lives out of the country or was born abroad.

2. Transfers during life up to a total value of £3,000 in any one tax year (plus any unused part of the previous year's £3,000).

3. Transfers during life in any tax year up to £250. Any number of these small transfers will be exempt, provided they are to different persons.

4. Transfers you make out of your income which are part of your normal expenditure, provided that you are left with sufficient income to maintain your usual standard of living. These transfers should be of a regular nature, or represent a commitment to make regular payments.

5. Certain transfers in consideration of marriage: up to £5,000 by a parent of the bride or groom; £2,500 where the gift is made by a grandparent or by one of the parties to the marriage; £1,000 by anyone else.

6. Transfers during life or on death to charities and recognised political parties.

7. Transfers during life or on death to certain bodies such as National Gallery, British Museum, National Trust and Universities in the United Kingdom.

How you can avoid paying Inheritance Tax

Are you using all of the exemptions available to you? In particular, if you are married, are you wasting one nil rate band of £300,000? Have you considered using trusts? How much can you give away? Have you considered providing for the potential liability?

This information is intended as very brief guidance for our clients and other readers on a complicated area of the law. It can be no substitute for considered advice on specific problems. Consequently, we cannot accept responsibility for reliance upon this information, or matters affected by subsequent changes in the law. If you require further information on inheritance tax, please do not hesitate to contact us.

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