Published On: Tue, Sep 17th, 2019

What Inheritance Tax does a spouse pay? Why it may not be payable after partner’s death | Personal Finance | Finance

Inheritance Tax may be required to be paid to HM Revenue and Customs (HMRC). The standard Inheritance Tax rate is 40 per cent. However, this is only payable on the portion above the threshold. Normally, there is no Inheritance Tax to pay if the value of the estate (property, money, and possessions) is below the £325,000 threshold – or if everything above this threshold is left to a spouse, civil partner, a charity, or a community amateur sports club.

This means that, usually, if a person leaves everything above the threshold to their husband, wife, or civil partner, then the estate would not be subject to Inheritance Tax.

Should they leave some of their estate to others, then the estate may attract Inheritance Tax if there is a portion above the threshold.

This could include if gifts were given in recent years.

If there is Inheritance tax to pay on gifts, it is charged at 40 per cent on gifts given in the last three years before the deceased person died.

Under the seven-year rule, gifts made three to seven years before their death are taxed on a sliding scale which is known as “taper relief”.

If the gift was given between three to four years, then the tax payable on it would be 32 per cent.

This decreases to 24 per cent, if it was four to five years before death.

It reduces to a 16 per cent rate for five to six years between the gift and death.

Should the gift have been given six to seven years between death, the rate is eight per cent.

If the gift was given seven or more years before death, then the tax paid would be zero per cent.

There are ways to increase an individual’s Inheritance Tax threshold.

For instance, if a person gave their home to their children or grandchildren – which includes adopted, foster, or stepchildren – then their threshold can increase to £475,000.

Couples who are married or in a civil partnership may also be able to increase their threshold.

This can be done if their estate is worth less than their threshold.

In this situation, when they die, any unused threshold can be added to their surviving spouse or civil partner’s threshold.

This means that their other half’s threshold can reach as much as £950,000.

READ MORE: When does Inheritance Tax become payable? How much Inheritance Tax could be due?

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