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How is Inheritance Tax Calculated on an Estate?

How is Inheritance Tax Calculated on an Estate?

Wilson & Fish is a specialist executry (probate) legal practice. Alongside our mortgage discharge practice, our solicitors have a wealth of experience in all executry matters, including inheritance tax (‘IHT’).

The first stage in calculating IHT is to ascertain the value of the estate. The executor or executors will create an inventory of all of the deceased’s assets, including property, cash, jewellery, and cars. Debts will be deducted from the cumulative value of the assets. Creating the inventory can be a detailed and time-consuming process, and executors will often seek assistance from a solicitor to ensure that the inventory is accurate. If the total value of the assets is under £325,000 (the ‘nil rate band’), IHT will not generally be payable.

If the estate is worth more than £325,000, then any assets over this value will be subject to a 40% IHT liability. For example, £50,000 of a £375,000 estate would be taxable, leading to an IHT charge of £20,000.

Experienced Executry Solicitors Scotland

The law on IHT is complex, and the calculation of an individual’s IHT liability will depend on a number of further factors. For example:

  • Whether the deceased person had a spouse or civil partner: If the entire estate is left to the deceased’s husband, wife, or civil partner, the threshold will double to £650,000. If the deceased was widowed before their death, they are entitled to their late spouse or civil partner’s unused nil rate band.
  • Gifts the deceased made in the seven years before their death: If the deceased gifted over £325,000 (cumulatively) in the seven years before their death, these transactions are taxable. This is however subject to exceptions, such as small birthday gifts.
  • The deceased’s testamentary intentions regarding their home: The nil rate band can be increased if the deceased left their home to their direct descendants.
  • Certain charitable donations will decrease IHT liability, including assets left to amateur sports clubs.

This list is not exhaustive – there are numerous other exemptions and other applicable laws. There are also various inheritance tax reliefs in respect of agricultural assets, businesses, and business assets. It is vital to ensure IHT is correctly calculated, to avoid claims against the estate and delays in the winding up process. The services of an experienced executry solicitor can be invaluable in offering reassurance that IHT has been paid accurately and efficiently. We pride ourselves on providing detailed and pragmatic advice tailored to our client’s particular situation, and we can interact with HMRC on our clients’ behalf.

Wilson & Fish is based in Glasgow and have a wealth of experience in advising clients across Scotland. We can arrange for you to meet a lawyer at a time and place convenient to you, providing expert executry advice as well as local knowledge and insight.

Our solicitors also work with overseas firms, providing advice on Scottish aspects of foreign estates.

Contact our Executry Lawyers

If you would like to discuss an inheritance tax matter or any other executry issues with one of our expert solicitors, please contact us by telephone (0141 222 7951) or via our online form.