The UK model of Inheritance Tax

[Brendan Burgess]

It's interesting to see how they tax gifts and inheritances in the UK.

As far as I can make out

On death
The estate pays the IHT, not the recipients
The first £325,000 is exempt from tax
The balance is taxed at 40%

If you are married, any unused threshold is passed on to your spouse. So if you leave £125,000 , your widow can add the balance of £200,000 to her exemption giving her an exemption of £525,000

If you leave everything to your spouse, there is no IHT

If you leave your family home to a direct descendant, the £325,000 is increased to £425,000

Gifts
There is no tax on gifts when they are given.



But if you die within three years, the recipient pays 40% of the value in IHT.

This tapers down for 7 years. If you die after 7 years, there is no IHT.

Brendan

 

[Gordon Gekko]

Hi Brendan,

That’s a reasonable summary. People often take out term life policies to cover the seven year period when making a gift.

We’re a bit odd in the way we tax the beneficary. People often get caught out by that; if their son or daughter is overseas, they’ll assume that a gift or inheritance won’t be taxable in Ireland (when it will).

Gordon