ASPL Guide to Inheritance Tax


Inheritance Tax is a tax on what you leave in your Will (and on gifts you make in your lifetime to some Trusts and companies). It only affects people who are likely to leave more than £325,000 (since 2009/10). This allowance will remain at £325,000 until the 2015/16 tax year, after which it will be index-linked. 

Where the estate, plus “Non-Exempt Gifts” which were made within 7 years before death, comes to greater than £325,000 then Inheritance Tax starts to bite at a rate of 40% of the excess. 

For example, if your estate is worth £375,000 (after deducting debts like mortgages, bank loans and outstanding bills), then deduct £325,000 which leaves £50,000, and Inheritance Tax is payable at 40%, which is £20,000. If your estate is worth £3m, then there will be over £1m Inheritance Tax for your beneficiaries to pay!

“Non-Exempt Gifts” made within 3 years of death are added to the estate. For gifts made between 3 and 7 years of death, only part of the gift is added to the estate (ranging from 20-80%).

Exempt Gifts

Exempt Gifts which are not added to the estate, even if the giver dies within 7 years of making them, are:

  • Any amount to your husband or wife (even if you are not living with them, or are separated but not divorced), which is also tax-free on death (assumes UK domiciled);
  • £3,000 in any tax year. So a married couple can give away £6,000 per year and can carry it forward 1 year if unused;
  • Wedding gifts: £5,000 by each parent (including step-parents), £2,500 by each grandparent or great-grandparent, and also the bride and groom to each other; and £1,000 by anyone else;
  • You can also give up to £250 each tax year to any number of different people provided they have not received any other gifts from you in the same tax year (under the above exemptions);
  • Any amount to a registered charity;
  • “Normal Expenditure” gifts which you give out of your after tax income and which do not affect your standard of living, i.e. you don’t have to draw on capital to make them;

Other exemptions include assets of unincorporated businesses, owner-occupied farms and farm tenancies, and any holdings of shares of unquoted, USM or Alternative Investment Markets (Aim) companies.

Please speak to Adrian or Ivan if you require any further information. 

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Adrian Smith

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