Inheritance Tax Calculator - work out your IHT liability.
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This calculator computes your assets and liabilities, and takes into account any 'potentially exempt transfers' in order to work out if you have any Inheritance Tax liabilities.
Inheritance tax (IHT) is a tax on any transfer of assets to other people or trusts. It is commonly paid in respect of an individual's estate on death, but it can also be applied in respect of certain transfers of assets during life. You don't have to be overly affluent to achieve this threshold. Today, the value of your property can easily take you over the threshold.
It is a mistaken assumption that you need to be particularly wealthy to incur a substantial Inheritance Tax liability. When you die, the value of your taxable estate is calculated. This is the total value of all your possessions and assets, less any available exemptions and relief. If the taxable estate exceeds the nil rate tax band of £312,000 (for the 2008/2009 tax year), anything over that sum is taxed at 40% (although lifetime transfers are more complex, charged immediately at 20%, and with periodic charges every ten years).
Simply 'giving away' assets may not necessarily reduce your IHT liability, as they may be deemed to be a 'potentially exempt transfer' by the Capital Taxes Office. Example: A donor makes a gift of a property to his daughter. If the donor survives for seven years, the gift becomes fully exempt, falls out of his/her estate, and escapes IHT entirely. However, if the he/she dies within seven years, the gift becomes retrospectively chargeable, and any tax is paid by the donee. Taper relief ensures that if the donor survives at least three years from the date of making the gift, the death rate of tax will be subject to taper relief, initially reduced by 20% but reduced by 80% in year six; If the PET is fully within the nil-rate band, the tax will be nil.
Inheritance Tax is a complex subject. Further topic-specific commentary can be found within the 'help' sections of the calculator; however, please note that this covers the 'basics' - if you are planning to embark on any planning in order to reduce your IHT liability, we strongly advise seeking professional advice.
On 9 October 2007, new rules came into force that allows an individual (who dies on or after 9 October 2007) to leave their unused nil-rate band to their spouse or civil partner. Effectively this does not do much more than normalize the situation that previously occurred, as motivated individuals could find numerous ways to use their nil-rate band effectively. For more information on these changes, read the notes issued on the HMRC website.