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Inheritance Tax - the lowdown

Understanding inheritance tax is important if you have just inherited a property or large lump sum of money. Inheritance tax is usually paid on the estate of a deceased person. It can also sometimes be paid on gifts passed on during someone's lifetime and trusts. The following is a lowdown on inheritance tax.

Inheritance tax basics

Inheritance tax is usually paid by the executor of the deceased estate using funds from the estate. The trustees are typically responsible for paying this tax on trust assets. In order to find out if inheritance tax is due on an estate, it must be valued first. This involves adding up the values of all assets in the estate including money, house, possessions and investments.

Inheritance tax is not payable on all estates. It is only payable if the value of the entire estate is over the current inheritance tax threshold. The threshold for 2011 to 2012 is £325,000. Tax is payable at 40% on amounts over this threshold. There are a number of exemptions and reliefs available, including spouse or civil partner exemption on estates left to a spouse or civil partner who is a permanent resident in the UK. There is also a charity exemption and an annual exemption on inheritance amounts up to £3,000.

For the majority of cases, inheritance tax must be paid within six months of the deceased party passing away. After this interest will be paid for each month the tax is not paid. The tax can be paid in yearly instalments if the value of the estate is tied up in property.

The above gives a brief outline of inheritance tax basics. As you can see, it is worthwhile having a good basic knowledge of the tax in order to make the most of your inheritance. For further information simply visit your local office of HM Revenue and Customs or speak to an independent financial advisor.

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