When planning for the future, many families in Somerset wonder about inheritance tax and how it might affect what they leave behind. At Acorn Solicitors, we regularly help clients navigate this complex area of law, so we’ve put together this straightforward guide to explain the basics.
What is Inheritance Tax?
Inheritance tax is charged on the total value of everything you own when you die, minus what you owe. This includes your home, savings, investments, personal belongings, and your share of any jointly owned assets. From this total, you subtract debts like mortgages, loans, credit cards, and funeral costs to arrive at your net estate value.
When Does Inheritance Tax Apply?
The good news is that many estates won’t pay inheritance tax at all. The standard rate is 40% on estates above certain thresholds, but several important exemptions apply first.
Complete exemptions mean no tax is due when you leave everything to:
- Your spouse or civil partner
- Registered charities
- Political parties
There’s also a reduced rate of 36% (instead of 40%) if you leave at least 10% of your estate to charity.
Understanding Your Allowances
Every person has a nil-rate band of £325,000. This means the first £325,000 of your estate is tax-free. If you’re widowed and your late spouse didn’t use their full allowance, you can inherit their unused portion, potentially doubling your tax-free amount to £650,000.
Homeowners have an additional residence nil-rate band of up to £175,000, but only if you leave your home to direct descendants (children or grandchildren). Again, this can be inherited from a deceased spouse, potentially adding another £350,000 to your tax-free allowances.
Special Reliefs
Certain types of assets qualify for substantial relief:
- Agricultural property and business assets may qualify for 50% or 100% relief
- These reliefs can significantly reduce or eliminate inheritance tax on qualifying assets
Lifetime Gifts and Planning
Gifts made during your lifetime can affect your estate’s tax liability. Generally, gifts become tax-free if you survive seven years after making them. However, the rules surrounding lifetime gifts are intricate and require careful consideration.
Getting Professional Help
Inheritance tax planning isn’t one-size-fits-all. Every family’s situation is unique, and the interaction between different allowances, exemptions, and reliefs can be complex.
At Acorn Solicitors, our experienced team understands how inheritance tax affects local families. As trusted professionals in Somerset, we can help you understand your position and explore legitimate ways to minimize your estate’s tax burden while ensuring your wishes are properly documented.
Whether you’re writing your first will or reviewing existing arrangements, we’re here to provide the personal, accessible legal advice that our Taunton and Street communities have come to rely on.
Need straightforward legal advice from a team that puts your family first? Visit us in Taunton or Street to discover how we can help secure your family’s future.
