How Much Will You Pay?
The Inheritance Tax laws state that those who own an Estate (the total of all their valued belongings) of below £300’000 will not pay any Inheritance Tax. This amount is going up gradually and will reach £350’000 in the tax year running from 2010-2011 (see related article for further information).
Most of us are still not liable for Inheritance Tax, yet more and more people are looking to pay tax on their Estates due to rises in the value of property. How much you pay will depend on the value of your property minus any exemptions you are entitled to or that you accrue through careful planning (see related article: Avoiding Inheritance Tax).
Payment Breakdown Explained
Anyone who has an Estate worth more than the nil rate tax band for Inheritance Tax (a sum varying from £300’000 to £350’000) between 2007 and 2010-11 will have to pay Inheritance Tax according to how much their Estate is worth. The Estate will be valued after your death by the person you have nominated to look after your affairs and may be checked over by the Tax Office.
An Estate worth over the nil rate threshold will be taxed at 40% on anything over that threshold. For example, if your Estate is worth £320’000 up to the 2008-2009 tax year, you would be liable to pay tax on 40% of £20’000 – a total of £8’000. If you are such a position you of course may well wish to somehow exempt the final £20’000 in any number of the ways expressed throughout this website.
Of course, being payable as a percentage means that what you pay will go up according to hoe much you have left after you pass away. For this reason the desire to exempt parts of your tax from your Estate will possible be greater the closer you are to the nil rate threshold. No one wants 40% of just £10’000 to pass to the tax man. Although on the other hand, those with a lot of money may be equally resentful at seeing £280’000 disappear from the £1’000’000 they have left behind.
As a short guide, as so you can get a good idea of how much you may wish to pay, and how much you may wish to exempt yourself from, those with £400’000 worth if total assets will pay £40’000; those with £500’000 will pay £80’000; Estates worth £600’000 will be liable for £120’000, those values at £700’000 will pay £160’000 and so on. As the nil rate band gradually rises so too will the amount that you are due to pay tax on (for a guide to nil rate band rises, see related article: ‘Changes to the Law – 2007’). Despite changes, the basic patter will remain the same, with the first £10’000 you are liable for being due for tax at £4’000, and each subsequent £10’000 being taxed similarly: Every £10’000 exempted from tax is £4’000 less paid to the tax man as well as £10’000 more paid to a family member, friend, or good cause of your choise.