Inheritance Tax Raises Lots of Money for the Government
IHT raised a mere £3.7bn in the 2014/15 tax year. This amount accounted for around 0.7% of the total collected by HMRC. In comparison VAT raised £111bn, approximately 30 times as much.
1st Inheritance Tax Myth Exposed
IHT Only Hits the Super Rich
Under current legislation IHT may not be immoral, but it is certainly unfair as the super rich rarely pay. They protect their assets through the likes of trusts and purchasing assets that qualify for business property relief. The burden of IHT falls largely on the middle classes, especially those in property hot-spots.
2nd Inheritance Tax Myth Exposed
Inheritance Tax is Inherently Unfair
Whether you believe inheritance tax is unfair or not the government allow plenty of opportunities to avoid paying estate tax with sufficient planning, so if you incur a tax bill, then you are essentially being penalised for poor planning and not merely for the fact that somebody planned to leave you money when they died.
3rd Inheritance Tax Myth Exposed
My Partner Will Inherit Everything Free of IHT
The commonly held belief that if you are married or in a civil partnership then your spouse will be able to inherit everything without incurring IHT charges. While this is true (up to a certain amount), it only applies if you have no children or have an up to date will.
If you have dependents but no valid will then current UK legislation dictates that your kids receive a portion of the estate, not just your spouse, and so inheritance tax will be due on the amount your children receive. The main lesson to learn from this is that it is vital to have an up to date will.
If you are not married, then you receive no exemption from IHT when leaving money to your spouse and will be liable on estates worth over £325,000.
4th Inheritance Tax Myth Exposed
You Can Avoid IHT by Giving All Your Money Away
Just to makes things difficult, this is both true and not true. You are not liable for IHT on any amount you transfer to your spouse or children providing it is completed at least 7 years before your death. You can whittle away your estate by making gifts of up to £3,000 a year to whomever you choose, and couples can give away double these sums.
You can also make smaller gifts up to the value of £250 a year to anyone you like, providing you haven’t already gifted them any money under the £3,000 exemption.
On top of this, you can gift wedding presents free of IHT too with each parent allowed to gift £5,000 in cash each. Grandparents can also give up to £2,500 each and others can pass up to £1,000.
If you donate 10% of your estate to charity, then the IHT tax rate on the remainder falls from 40% to 36%.