The estate is the wealth left behind by someone after they die. This includes everything from property to possessions to businesses to cash and more. It is split between those listed in the will of the deceased. And depending on the estate’s value, the beneficiaries might need to pay Inheritance Tax (IHT).
What is the taxable value of an estate?
As we said, an estate can include things like property, land, cash, shares, jewellery, works of art, vintage cars etc. And in the same vein, debts are also carried over. They are deducted from the value of the estate after you die. Examples include:
- Credit card debt
- Debit card debt
- A mortgage
- Equity release
Debts such as these reduce the value of the estate for Inheritance Tax purposes.
When do I pay Inheritance Tax?
Beneficiaries of an estate don’t need to pay any Inheritance Tax in the following scenarios:
- If the value of your estate is less than the £325,000 threshold (or £500,000 if you give away your home to children). This threshold can further increase to £1,000,000 for married couples or civil partners
- If you leave everything above the £325,000 threshold to your spouse, civil partner, a charity, or a community amateur sports club
How to calculate the taxable value when someone dies
Take a look at the below example to calculate Inheritance Tax on an estate worth £400,000.
- 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 £250,000 – (£400,000 – £150,000)
- This is under the IHT threshold, so there is no tax to pay
For an example of the journey you have to make when someone dies as a beneficiary, take a look at our blog, Lord of the Rings – and the tax return.
Or if you want to calculate IHT, head over to HMRC.
Hey there! We really hope this article helped you. Tax matters can be a dreadful topic at times. We know. That's why we started TaxScouts.
A stress-free way to getting your taxes done.
Have a minute? See how it works