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Inheritance Tax calculation

If you are acting as an executor or personal representative you will need to work out if inheritance tax is payable on the estate and how much inheritance tax needs to be paid.

The inheritance tax rules are complicated. The basic rule is that Inheritance Tax is charged at 40% on the net value of the estate over £325,000 however, there are a number of exemptions and allowances that can reduce the amount of tax payable.

The ‘residence nil rate band’ reduces the inheritance tax payable on an estate where there is a residential property that is left to direct descendants.

An estate that passes to a spouse or civil partner is exempt from inheritance tax, and the personal allowance passes to the spouse so that they have a joint allowance of £650,000 after their death.

There are allowances available for certain types of investment including agricultural property and business assets.

It is possible that inheritance tax liabilities can be reduced if the beneficiaries agree to a Deed of Variation to ensure that the estate makes full use of personal allowances, reliefs and exemptions.

In order for you to calculate the inheritance tax payable on an estate the starting point will be to answer two questions. What is the total value of the deceased’s assets? What is the total value of the deceased’s debts?

As well as an idea of the value of the assets you will also need to know details about any properties that the deceased owned and whether they were owned jointly with anyone else. Were they business or agricultural properties.

Did the deceased have bank accounts or investments? Do any of them qualify for exemptions or reliefs?

Was there a pension, life insurance or shares?

What inheritance tax exemptions or reliefs are available – for example was the deceased married? If the spouse died first how much of their inheritance tax exemption was used? Is the deceased’s estate entitled to carry over any unused exemptions?

Calculate the inheritance tax payable.
Check if the estate qualifies for available reliefs or exemptions, such as business property relief or agricultural property relief
Look at reducing a beneficiary’s Inheritance Tax burden with a deed of variation or disclaimer.
We can advise you how to ensure the transferable nil rate band and new residence nil rate band are fully used.
We can check the estate qualification for available reliefs or exemptions, such as business property relief or agricultural property relief
We can ensure that all personal annual allowances including gifts of £3,000 per tax year per person and wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great grandchild, £5,000 for a child) are taken into account.

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For more information contact rb@startpointlaw.co.uk or telephone 01548 288008