As house prices have risen inexorably over the last 15 years, the issue of inheritance tax has become an increasing concern for more and more UK homeowners. By gaining a clearer understanding of the tax you can take some simple steps to minimise the amount the taxman will take from you and your loved ones.
The UK government has been taking a form of inheritance tax since the introduction of Death Duty in 1796, when it was desperate for money to defeat the armies of Napoleon. However, as with income tax, the defeat of Boney did not mean the end of the tax and it has been with us in one form or another ever since.
The current Inheritance Tax (IHT for short) was introduced in 1986 but it is the relentless rise of the property market over the last 15 years that has meant it is no longer just the very wealthy who find themselves eligible to pay this tax. Anyone with an estate (including their home) valued at over £300,000 is now required to make the payment.
High property prices, particularly in the south of England, mean that record numbers are now eligible to pay. To partly take this into account, this figure is due to rise to £350,000 by 2010.
An estate is essentially everything an individual owns at the time of their death, minus anything they owe. If your estate is valued at over £300,000 then the excess over this figure will be eligible for taxation at a rate of 40% during the tax year of 5 April 2007 to 4 April 2008.
One of the most important and misunderstood aspects of IHT concerns the rights of the partner of the deceased. If the deceased is survived by their husband or wife who lives in the UK then there is no tax payable, even if the estate is valued at over £300,000. The tax will be payable on the death of the second partner. Many believe that co-habiting partners enjoy similar rights but this is not true.
In fact, they would have NO automatic legal rights to the estate. The rules state that if the deceased does not explicitly name them in their will they may end up with nothing.
