Inheritance Tax in a Nutshell

Inheritance Tax in a Nutshell

Date: 05/03/2014

The two unavoidable certainties, i.e. death and taxes, will inevitably come together one day. But you can possibly avoid but definitely reduce the inheritance tax with proper planning.  Inheritance tax is often referred to as the ‘voluntary tax’, being easily reducible. Here is a small list of helpful facts:

1- The first step will be that HMRC will ask your executors to work out the value of your estate by adding up all your assets, including your home, your savings and investments (even individual savings accounts and any other tax-free savings accounts), valuables (such as jewellery, artwork, and cars), certain life insurance policies, and the value of any debts other people owe to you when you die.

2- But don’t worry anything you leave to your spouse or civil partner will be ignored for this inheritance tax calculation. Gifts between spouses and civil partners are totally exempt for inheritance tax purposes.

3- HMRC also looks back to the previous seven years and add the amount of certain gifts you made to others during the period to value of your estate.

4- For inheritance tax purposes all your assets are valued on the date you die or when you gave them away, not the date you bought or acquired them, or the date you included them in your will (assuming you have one).

5- Executors can deduct the following from the value of your estate:

  • Certain exemptions (such as donations to national galleries and museums, and gifts to housing associations)
  • Charitable donations (left in a will)
  • Costs of winding up your estate
  • Funeral costs

6- Once the executors have established the value of your estate, HMRC deducts the nil-rate band (£325,000 in 2012-13 and £329,000 in 2013/14 as proposed by the new Autumn Budget. For married couples or widows, the nil rate band is £650,000.

7- There is no tax payable on if the value of the estate is under nil-rate band. If the value of the estate is more than the nil-rate band, inheritance tax is payable at the flat rate of 40 per cent.

Inheritance Tax Calculator for single or divorced

Inheritance Tax Calculator
House Value (including 2nd property)£
Household contents and Personal effects£
Bank and Building Society Accounts£
Stocks and Shares£
Savings and Investments (including offshore, ISAs, endowments, etc.)£
Other Assets (car, boat, Life Assurance not under trust etc.£
Assets Sub Total£
Subtract Debts (mortgages, other loans etc.)£
Subtract Nil Rate Band£325,000
Approximately  Net Estate Size£
IHT x 40%                                               Total£

For married couples or widow, the nil rate band will be £650,000.

This is Inheritance Tax in a nutshell. If you need any further help, simply contact us on 0113-2488181 or email us at

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