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Q&As about Inheritance Tax in the UK
2022-03-14

Q:

  What is inheritance tax?

A:

  Inheritance tax is levied on the property and money of the deceased. Inheritance tax is levied on all property left after a person’s death just like all other assets of the living. However, in April 2017, the UK Treasury launched the policy of additional inheritance tax allowance, which shows that couples can obtain a property exemption of tax up to £ 1 million. The amount of tax exemption depends on who the heirs of the property are, when they die and the overall value of the property.

Q:

  What is the zero interest rate range of property?

A:

  The main residential zero tax range is the additional property allowance, which can leave property to family members without any tax. According to the regulations, assuming that the property is inherited to immediate descendants, they can enjoy a tax-free allowance of £ 175,000 in the tax year 2021-22. The allowance can only take effect in the immediate descendants( including children or grandchildren) of the deceased, while nieces, nephews or friends are not included.

  However, not everyone is eligible for the full allowance. Assuming that the total asset value of one’s property exceeds £ 2 million, the additional allowance will be relatively cut. After exceeding the threshold, one pound will be cut for every two pounds. Married spouses and legal partners can apply for the unused allowance of the deceased partner, which also means that they can transfer property worth up to 350,000 pounds tax-free in the 2021-22 tax year.

Q:

  What is the rate of inheritance tax?

A:

  In the tax year of 2021-22, the allowance for housing property can reach £ 175,000. One’s married spouse and legal partner can have the same allowance. It is equivalent to doubling to £ 350,000. At the same time, the real estate tax exemption can be superimposed on the inheritance tax exemption. The amount of the allowance has been £ 325000 since 2010, which means that the allowance for estate tax as an individual can be up to £ 500,000 or £ 1 million of spouses in 2021-22.

Q:

  Who are the heirs of tax-free inheritance?

A:

  According to the British government, only the immediate descendants of the deceased can enjoy the new policy. Immediate descendants refer specifically to:

- Children and their spouses or legal partners

- Great grandchildren and their spouses or legal partners

- Stepchildren

- Adopted children

- Children in the custody of their heirs

  This also shows that the transfer of property to nephews, nieces, siblings or other relatives is not eligible for this allowance policy.

Q:

  Which properties meet the allowance requirements?

A:

  The zero tax rate range of primary residence can only be applied to a residential property, which must be included in one’s late estate (included in the assets directly owned by the deceased, and the trust holding does not take effect), and the deceased had lived in the property at a certain stage of his or her life. Assuming that one owned more than one property, the heirs can choose one of them as the property to apply for allowance for deducting the inheritance tax.

Q:

  How to calculate the value of more than £ 2 million?

A:

  Assuming that one owned a property worth more than £ 2 million, the zero tax rate range of his or her main residence and the amount of tax-free transfer will gradually decrease. If there is a property worth £ 2.2 million in the 2021-22 tax year, the allowance of zero tax rate will not be available.

Q:

  Can one enjoy the exemption from inheritance tax for the gift of real estates?

A:

  First of all, make sure that any gift must be a real gift in nature. For example, if you give a real estate to someone but continue to live rent free, you will be the ultimate owner of the property until you die, and will still be taxed as part of the estate after death. The same rules apply to other assets.

  If it is a gift property before death, it is classified as a potential tax-free transferred property. If the gift giver died within seven years after the gift, the beneficiary may need to pay inheritance tax. If the value of the property is less than £ 325,000, the inheritance tax allowance will be added to the taxable estate calculated in one’s estate. If this value exceeds 325,000, the property will be charged a decreasing rate for the excess out of the allowance, depending on the life of the giver after giving away the property gift.