Public Servant Lifestyle

What Is An 'Estate'?

A person's estate includes the total of:

- Everything owned, in his or her name.

- The share of anything owned jointly.

- Gifts, from which he, or she, keeps back some benefit, for example, a house still lived in and maintained, although given to someone else.

- Assets held, in trust, from which he, or she, gets some personal benefit, for example, an income.

What Is The Threshold At The Moment?

The threshold for deaths on, or after, 6 April 2001, is £242,000. If your estate (including assets held in trust, and any gifts you have made within seven years of your death) is less than the threshold, no inheritance tax will be due on it.

Do I Need To Include Every Gift I've Made, Within Seven Years?

No. Some outright gifts are exempt.

When you are working out your estate, you do not need to include:

- Wedding gifts, of up to £5,000, to each of your children (including step-children and adopted children) or the person that your child is marrying.

- Wedding gifts, up to £2,500, to each grandchild or the person that your grandchild is marrying.

- Wedding gifts, of up to £1,000, to anyone else.

- Payments for the maintenance of your husband, or wife, ex husband or ex-wife, dependent relatives and, usually, your children, who are under 18, or in full-time education.

- Other gifts, up to a value of £3,000, in any one tax year, plus any unused balance, of £3,000, from the previous tax year (The tax year starts on 6 April, in one year, and ends on 5 April in the following year.)

- Outright gifts, in any tax year, up to a total of £250 each, to any number of people, but only if the total of all gifts, made by you, to the recipient, in the same tax year, does not exceed £250.

- You can make gifts, under more than one of the above headings, to the same person, and they will be free from inheritance tax. For example, to a child in the year they marry, you could give £5,000, as a wedding gift, plus £3,000, as another gift, and these would be exempt.

What Happens If I Leave Everything To My Husband or Wife?

Anything that you give, during your lifetime, or leave, on your death, to your husband or wife, is completely free of inheritance tax, but both of you must be domiciled in the UK.

Is Inheritance Tax Payable On Gifts Or Bequests To Charity?

No. All outright gifts, and bequests, to UK registered charities, are completely free of inheritance tax.

If My Estate Is More Than The Threshold, How Is Inheritance Tax Worked Out?

If the value of your estate is above the threshold, then inheritance tax is payable.

However, the following are exempt from inheritance tax:

- Anything you leave to your husband, or wife.

- Anything you leave to a UK registered charity.

- Any bills outstanding at your death, including your funeral expenses.

For example:

Mr Jones died, on 10 April 2001, leaving his whole estate to his daughter. The threshold for inheritance tax, at the time, is £242,000 and the rate of inheritance tax is 40%.

Assets Value

House: £210,000

Car: £9,500

Bank account: £19,250

Shares: £30,075

Premium Bonds: £500

Total value: £269,325

Allowable deductions

Telephone bill: £55

Electricity bill: £45

Gas bill: £35

Funeral expenses: £950

Total deductions: £1,085

Net value of Mr Jones' estate: £268,240

Inheritance tax is payable, because the net value of the estate is above the threshold of £242,000.

Tax is charged at 40%.

Net value of assets: £268,240

Less threshold: £242,000

Total liable to inheritance tax: £26,240

Inheritance tax (£26,240 x 40%) £10,496

Who Pays The Inheritance Tax Due On An Estate?

The executor, or administrator (also known as the 'personal representative') is liable to pay any inheritance tax due on an estate.

Are there any charges, if inheritance tax is paid late?

Interest is charged on any tax not paid by the due date, no matter what caused the delay in payment. The due date is six months after the end of the month, in which the death occurred. So, in the example, interest is due from 1 November 2001.

Where To Get More Help

More help is available from:

- Inland Revenue (Capital Taxes) Ferrers House, PO Box 38, Castle Meadow Road, Nottingham NG2 1BB. Telephone helpline: 0115 974 2400.

- Inland Revenue (Capital Taxes) Meldrum House, 15 Drumsheugh Gardens, Edinburgh EH3 7UG. Telephone helpline: 0131 777 4050.

- Inland Revenue (Capital Taxes) Level 3, Dorchester House, 52-58 Great Victoria Street, Belfast BT2 7QL. Telephone helpline: 028 9050 5353.

Information provided by the Inland Revenue.

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