Compact Services

  2012 Budget - Inheritance Tax

Rates

The nil rate band for cumulative chargeable transfers in the last seven years is £325,000 (unchanged since 6 April 2009). If one of a married couple/civil partnership did not use the full band on death, the unused proportion increases the nil band of the other spouse/partner.

Gifts above that are charged at the following rates:

Chargeable legacies on death 40%
Gifts within 7 years of death 40%, with reductions if over 3 years before death
Lifetime chargeable gifts 20% if the donee pays the tax, 25% if the donor pays

Payment

Inheritance Tax (IHT) on a deceased's estate and on gifts within 7 years of death is generally payable at the end of six months after the month of death, but tax on the estate must be paid before probate is granted, and this may necessitate earlier settlement.

IHT on chargeable lifetime gifts is payable on the later of six months after the month of transfer or 30 April in the next tax year.

Major reliefs

Lifetime gifts between individuals are left out of account while the donor survives ('potentially exempt transfers'). They are only charged if the donor dies within 7 years of the gift.

The following transfers are exempt from IHT:

  • the first £3,000 gifted in a tax year (unused limit may be carried forward for one year)
  • small gifts of up to £250 per recipient in a year
  • normal expenditure out of income
  • gifts between husband and wife, unless the donor is domiciled in the UK and the recipient is not
  • gifts in consideration of marriage - £5,000 from a parent, £2,500 from a grandparent or a party to the marriage, £1,000 from others

Most business and agricultural property enjoys a 100% relief once it has been owned for two years, although some types of property are relieved only at 50%, and it is important to meet all the conditions.

Relief for gifts to charity

Gifts or legacies to charity are not charged to IHT. In addition, where 10% of the net value of an individualís death estate is left to charity, the IHT rate on the rest is reduced from 40% to 36%.