What is exempt from inheritance tax UK?
Inheritance tax is a significant concern for many individuals and families in the UK, as it can significantly reduce the value of an estate left behind. However, it’s important to understand that not everything is subject to inheritance tax. In this article, we will explore what is exempt from inheritance tax UK, helping you to better understand the rules and regulations surrounding this tax.
Inheritance tax is a tax paid on the estate of someone who has passed away, which includes their property, money, and possessions. The standard rate of inheritance tax is 40%, but this is only charged on the part of the estate that is above the threshold. The current threshold is £325,000, but this can be increased if the estate is left to a spouse, civil partner, a charity, or a community amateur sports club.
Exemptions from inheritance tax UK
1. Spousal and civil partner gifts
Gifts made to a spouse or civil partner are exempt from inheritance tax, regardless of when the gift was made. This means that any assets left to a surviving spouse or civil partner are not subject to inheritance tax.
2. Charitable donations
Donations to registered charities are exempt from inheritance tax. This includes money, property, and other assets left to charity in a will. It’s worth noting that gifts to non-UK charities are also exempt, as long as they are registered in the UK.
3. Gifts given three years before death
Gifts given three years before the donor’s death are also exempt from inheritance tax, provided that the donor survives for another seven years after making the gift. If the donor dies within seven years of making the gift, the value of the gift may still be taxed on a sliding scale, depending on how long the donor survived after making the gift.
4. Annual exemption
Individuals in the UK are entitled to an annual exemption of £3,000 on gifts they make during the tax year. This exemption can be carried forward to the following year if it is not used in the current year.
5. Small gifts
Gifts of up to £250 per person per year are exempt from inheritance tax, provided that the same gift is not covered by another exemption. This includes gifts to children, grandchildren, and other relations.
6. Wedding and civil partnership gifts
Gifts given on the occasion of a wedding or civil partnership are exempt from inheritance tax, provided that the gift is given within two years of the event. The exemption applies to gifts of up to £1,000 for a child, £2,500 for a grandchild, and £5,000 for anyone else.
7. Life insurance policies
Life insurance policies taken out by the deceased that pay out directly to their beneficiaries are exempt from inheritance tax. This includes policies written in trust.
Understanding what is exempt from inheritance tax UK can help individuals and families plan their estates more effectively. By taking advantage of these exemptions, it is possible to reduce the amount of inheritance tax paid on an estate, ensuring that more of the deceased’s assets are passed on to loved ones.
