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Currently, the standard IHT rate is 40 percent and this is only charged on the part of the estate that is above the threshold. Great effort is usually given to trying to reduce how much IHT is due, even from the government. The government will reduce an IHT bill from 40 percent to 36 percent if at least 10 percent of the total net value of the estate is left to charity. The situation can become even more complicated when factoring shared thresholds with partners, trusts and gifts.
Once all this information is ready, the user will officially start using the tool on the HMRC website.
A number of text boxes are presented which ask for certain financial information.
There are eight boxes total but only two of them are essential. The boxes that must be completed ask for an inheritance tax nil rate band figure and the total value of assets in component.
The remaining boxes ask for details on gifts made, any possible deductions and the value of all other parts of the estate.
Value of component after deductions: £500,000.00
Value of component minus donation to charity: £482,500.00
Inheritance Tax nil rate band applied: £325,000.00
Value of component minus Inheritance Tax nil rate band: £175,000.00
Minimum charitable donation to meet the ten per cent test: £17,500.00
Minimum charity donation required: £17,500.00
£17,500.00 is the minimum charity donation required for this component to qualify for the reduced rate of Inheritance Tax.
This is a simplified example as the actual details for an estate will likely be much more expansive. However, HMRC provide guidance notes for using the tool. In these notes, they expand on all of the information needed with explanations on what they are and why they’re important.
HMRC can also be contacted directly for advice on probate and IHT following a death. They detail that they can help with understanding IHT responsibilities, confirming the forms needed, getting paper copies of forms and completing IHT forms.
IHT is a common part of financial planning and there are many private companies who can also offer assistance. They may be able to arrange estates in a certain manner so that the IHT bill is reduced but there will likely be a fee for these services.