Despite the downward pressure on house prices in the last four years, we are starting to see a slight recovery, and in the past year, house price have once again started to increase. Although an increasing house price has a number of benefits for homeowners, it also means that a higher proportion of people are having to pay Inheritance Tax (IHT) on their properties. In 2009 the government froze Inheritance Tax until 2019. Individuals pay Inheritance Tax on any assets worth more than £325,000, and for couples the threshold is £625,000.
For the 2011/2012 tax year, a total of £2.9 billion was paid in Inheritance Tax. However, in the most recent tax year, a total of £3.1 billion was collected. These figures suggest that the price of houses has increased and put a significant number of people into the tax bracket, meaning their assets are now subject to the 40% IHT rate. Assets are not currently eligible for Inheritance Tax if they are left to a spouse or civil partner, even if their total value is greater than the current threshold for individuals. The spouse or civil partner taking ownership of the assets must live in the UK permanently to be exempt.
Other exemptions include certain payments, either whilst alive or in a will, that an individual makes to charities. However, only certain charities qualify for these exemptions. Most assets that are given away more than seven years before a person passes away will be exempt, including your property. However, if someone does not pay rent after giving their house to a family member, the house will be subject to IHT when the previous owner passes away. Other potentially exempt transfers must be made at least seven years before an individual’s death. For example they can give up to £3,000 each year, up to £250 to an unlimited number of people and parents can give £5,000 as a wedding or civil ceremony gift, and grandparent and great-grandparents can give away £2,500. Other potential exemptions may include owning a business or certain types of land.
There are several other important factors which must be considered when tax planning and considering your IHT liabilities. A professional will enable you to look at the whole picture and help you to make the best decision for you and your family.
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