The estate is the amount of wealth left behind by someone who’s died. Depending on its value, the beneficiaries of the estate might need to pay Inheritance Tax (IHT).
What is the taxable value of an estate?
An estate can include things like property, land, cash, shares, jewellery, works of art, and vintage cars. On the other hand, debts like credit card debt, a mortgage, or equity release, reduce the value of the estate for IHT purposes.
Beneficiaries of an estate don’t need to pay any Inheritance Tax if:
- the value of your estate is smaller than the £325,000 threshold (or £475,000 if you give away your home to children). This threshold can further increase to £950,000 for married couples or civil partners
- you leave everything above the £325,000 threshold to your spouse, civil partner, a charity, or a community amateur sports club.
Example of calculating the taxable value of an estate:
- let’s say the deceased’s house is worth £400,000, and there are no other assets
- there is an outstanding mortgage of £150,000
- the estate’s value for IHT purposes is (£400,000 – £150,000) = £250,000
- because this is under the IHT threshold, there is no tax to pay.