Inheritance tax is a levy which currently stands at 40 percent, and must be paid out of the estate of someone who has passed away in no less than six months. It is, however, worth noting that their is an IHT threshold, which means only the value of an estate over this amount is taxable. For most people this threshold currently stands at £325,000 according to HMRC rules and guidelines.
This nil-rate band is considered to be an extra allowance for property to allow people to pass on their homes.
When passing a home to a direct descendant, such as a child or grandchild, Britons can receive an extra £175,000 in tax-free allowance this tax year.
In the current tax year, then, coupled with the £325,000 threshold, couples could be exempt up to £1million.
Single people will receive half of this at £500,000 – which is still sizeable for many families.
The person who has passed away must also have lived in this home at some point throughout their lifetime.
And for those who own more than one home, an executor can nominate which property should be used for the IHT bill and allowance.
Some people may choose to give away their home before they die, perhaps in an effort to avoid an IHT bill – however, there are rules to cover this also.
If a person gives away a home before they die, there is normally no Inheritance Tax to pay if they move out and live for another seven years.
However, if a person does die within seven years, then a home is treated as a gift, meaning the seven year rule – and therefore tax – applies.
Those who wish to continue to live in their property after giving it away must pay rent at the going rate to the new owner, their share of the bills, and live there for at least seven years.