Everything You Need to Know About Inheritance Tax Liability

Nothing in this life can last forever, neither can the people in your life. Therefore, when a parent, a grandparent or maybe the husband/wife passes away, you will automatically inherit some of their assets. Therefore, you must understand how inheritance taxes work and what you have to do in this case. When a loved one passes away you are already overwhelmed by emotions and any other things, the taxes should be the last thing to worry about on your list, but you still have to do it. Good thing there is a solution for this that can make your work easier, with the help of a tax advisor that can give you inheritance tax advice about the inheritance tax liability. 

What Is an Inheritance Tax Liability?

Evelyn has a definition for these taxes and mentions ‘Inheritance tax is a tax on your estate. It is most commonly paid by the people (other than your husband, wife or civil partner) who inherit your estate after you die. Typically, it has to be paid before your estate is distributed to your beneficiaries. Your estate is a combination of your worldwide property, savings, investments and other assets.’

An inheritance tax liability represents your attribution to pay a tax for your inheritance. This is a tax that can be imposed on the assets or properties that you inherit from a person that passed away. Depending on the region, the country that you live in, the rate of this tax may vary and there may be deductions or exemptions that influence the total amount you have to pay. 

An inheritance tax is only payable on certain amounts of wealth and there are a lot of options to minimise or to even eliminate these taxes. One thing you should always remember is that tax rates depend a lot on individual circumstances and they might change from one case to another. 

Who Pays Inheritance Tax?

Usually, the one who is supposed to pay the inheritance tax is the executor of the will. For example, if you inherit a house, an amount of money or any other things you will have to pay for them. If you are in the position to pay it you should know that you can pay it with the money from the sale of any assets, with the money from the estate or basically any money which has been left to cover the bill. 

Depending on the amount that you inherit the taxes may vary, usually if the amount is bigger the tax will be the same. In some regions/countries there can be deductions or exemptions that can reduce the taxes. For example, a husband/wife or the children can have total or partial exemptions. 

In some cases, the person who leaves the legacy might think about these taxes and pay them in their lifetime with financial planning but most of the time the one who receives the legacy pays the taxes for it. If you wonder what happens if you do not pay these taxes then you need to know that HMRC will start charging interest. But after the person’s death you have six months to pay the inheritance tax.  

How Much Is the Inheritance Tax?

HSBC UK mentions ‘If the total value of your estate is more than your tax-free threshold, then the amount that sits above the threshold will usually be liable for tax at a rate of 40%. For example, let’s say your estate is worth £550,000 and you want to leave it all to your children. If your tax-free threshold is £325,000, there will be an IHT bill of £90,000 – that’s 40% of £225,000.’

To be more specific, the taxes from the United Kingdom will be analyzed. In the UK the inheritance tax is applied on the assets inherited but you do not always have to pay it, and it also depends on the value inherited. 

The main aspect to look forward to is the threshold. If the value of the assets that you inherited is below £325.000, you do not have to pay the inheritance tax. This is the standard exemption threshold also known as ‘nil-rate band’. 

Useful Inheritance Tax Advice 

Even though it might be a shock that if you have significant wealth it might be subject to Inheritance Tax when you die there are some ways that you can protect all that you own. So, here is some inheritance tax advice that you can do in your lifetime to avoid the inheritance tax liability:

• By making gifts. This is an efficient way to reduce the amount of IHT your dear ones will have to pay when you die. 
• There are some exemptions that can reduce the amount on which the tax is applied, like a charitable exemption. 
• You can ask for professional advice over the years for an effective financial plan. An expert can help you in some situations to reduce the IHT. 
• You can make different transactions or donations during your lifetime. 

If you want the things done in the right way, you have to take into account speaking with an expert that can give you professional inheritance tax advice. Taxes might be a complicated thing to do, especially when a loved one passes away and you are overwhelmed, but with a little bit of help you can get things done. 

Conclusion

Even though it might not be the most pleasant thing to think about the fact that you have to pay taxes even for your inheritance, but it is definitely a thing that has to be done. You have to deal with the inheritance tax liability within six months of death because otherwise other complications could occur. Usually there is a ‘nil-rate band’ and if the value you inherited is under a certain amount of money, then you will not have to pay the IHT (Inheritance Tax). You can ask a tax advisor for inheritance tax advice so that you can find out how to reduce it.