15:54 26 February 2013
The inheritance tax threshold is £325,000. If the estate is lower than this amount, no inheritance tax will be paid. However, if the estate is more £325,000 and if it doesn’t transfer directly to the civil partner or spouse, the excess is taxed at 40per cent.
Married couple and civil partners are allowed by law to share their allowances. This means that on the death of one partner, he can leave as much money as he like to the surviving partner without any tax being due. The second partner is allowed to use the remaining allowance. If the second partner dies he can leave up to £650,000 without getting taxed.
Inheritance tax exemptions
One can avoid paying inheritance tax by taking advantage of various exemptions. Some of them are the following:
•Gifts. Each year, you can give gifts to family members and even friends that will not be included in your estate. You are allowed to give away up to £3,000 in each tax year. Unused allowance can be carried over to the next year.
Each parent can give £5,000 to his child per year. While grandparents and other relatives are allowed to give up to £2,500 without getting taxed. These gifts can be combined with the annual exemption of £8,000.
•Trusts. Payments into trusts for somebody who is disabled and certain trusts for children are not subject to 40per cent inheritance tax.
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