If you’re a UK resident, you may be familiar with the concept of death duties. It’s one of the more complicated concepts in tax law. But that doesn’t mean it’s difficult to understand – and this article will give you an introduction to what death duties are, as well as how they’re calculated.
What is death duty?
Death duty, which is also called inheritance tax or estate duty, is a form of taxation on the assets (real and personal) of a deceased person. It’s a progressive tax that can be levied at rates varying from 0% to 40%. Death duty is a tax that most UK residents will have to pay when they die. It’s calculated based on the value of the estate that has passed to the person’s heirs after their death, usually at their death. Any assets left over are also subject to tax, as well as inheritance tax – which means your estate could be taxed twice.
What does the death duty threshold mean in UK law?
The death duty threshold is set at £151,620 which is equivalent to approximately $205,000. This means that after the estate of a British citizen has been valued and any applicable amount of inheritance tax has been paid, the deceased’s share of their estate is free from tax.
As a result of this law, Britons across the board can leave an estate worth up to £151,620 without paying for any more stamp duty on it. The death duty threshold is the point at which a person in the UK becomes liable to pay inheritance tax on their estate. For example, if you have no children, your estate will be taxed at £325,000. However, if you have one child or more, your estate will only be taxed if it exceeds £325,000. The death duty threshold is being raised by 10% every year until 2020 when it will hit £650,000.
When is someone liable to death duty?
Death duty is a tax payable to the HM Revenue & Customs (HMRC) when someone dies. It’s calculated in the same way as income tax and is based on the individual’s total net wealth. The rate of death duty varies depending on the type of property owned by the deceased, with a higher rate applied for properties assessed at over £2 million. When the individual dies, they are liable to death duty. Death duty is a tax on net wealth over £650,000. This includes all assets including money in bank accounts and investments so long as it is not separated from the estate within seven days of death.
Death Duty Rates: How much do you have to pay on your estate?
A UK Tax Law article on death duties explains the rates and what they are based on. For people who don’t want to spend a lot of time researching their estate taxes, this is a good article to start with. When someone dies, the estate will be subject to death duty, which can be paid with a single payment or in installments. Certain exemptions may apply, so you should speak with a financial advisor before paying your duty.
There is a wealth of information on death duties in the UK. You may need to take legal advice or speak to a specialist if you are unsure of how these rules apply to your specific circumstances.