Calculating Inheritance Tax

Chapter 13 shows you how to tot up the assets of the estate for calculating IHT. As an executor or administrator you can work out the IHT bill yourself or ask the tax office to do it for you. If you decide on DIY, then you fill out supplementary page D18 and submit it at the same time as Form IHT 200.

Calculating Inheritance Tax

Gifts made to a spouse, charities, and political parties, the debts of the deceased, and 'reasonable' funeral expenses – no hiring out Westminster Abbey – are deducted from the estate.

If the total value of the estate is greater than £300,000 (2007/08 tax year) rising to £312,000 in April 2008, then IHT kicks in at a rate of 40 per cent. If the estate is worth £400,000, the IHT bill will be 40 per cent of £100,000, or £112,000 from April 2008.

Calculating Inheritance Tax

You may want to ask a solicitor or an accountant to give your Form IHT 200 and your tax liability calculation the once over. If the estate is a very complex one, you may choose to leave the tax-collector to work out the IHT bill.

Calculating Inheritance Tax

If you inherit property that has recently been subject to an IHT charge – in other words, the person leaving the gift to you recently inherited it themselves after IHT had been levied on it – then you're entitled to claim IHT relief. (Check out Chapter 16 for more on this important tax relief.)

If the deceased gave away any substantial assets during the seven years prior to death they may still attract IHT. This situation is called a potentially exempt transfer (PET) and is explored in full in Chapters 15 and 16. Crucially, the level of IHT paid on a PET reduces between three and seven years.

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