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Inheritance tax

Inheritance tax (IHT) is usually paid when somebody dies if their estate – including any assets held in trust and gifts made within the seven years prior to death – is valued over the IHT nil rate band (£325,000 until 2014-15).

IHT is paid at 40 percent on anything over this threshold, although this will drop to 36 percent from April 2012 for those estates leaving 10 percent or more to charity.

IHT may also sometimes be payable on trusts or gifts made during someone’s lifetime.

Married couples and registered civil partners can increase the threshold on their estate when the second partner dies to as much as £650,000 (until 2014-15) by transferring the first spouse or civil partner’s unused nil rate band to the second spouse or civil partner when they die.

How to pay: Generally speaking, IHT must be paid within six months of the end of the month in which the deceased died. After this, interest will be charged on the amount outstanding.

IHT can be paid in annual instalments over ten years if the value of the estate is tied up in property such as a house.

Typically, the executor or personal representative of the deceased person pays the IHT using funds from the deceased’s estate.

If assets are within, or have been transferred into, a trust, the trustees are usually responsible for paying IHT. Sometimes people who have received gifts, or who inherit from the deceased, have to pay IHT, but this is not common.

Seeking professional advice is a wise step to ensuring that your financial affairs are managed as tax-efficiently as possible.

For more information visit http://www.hmrc.gov.uk/inheritancetax/intro/basics.htm

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