How does inheritance tax in the UK work

1. How does inheritance tax in the UK work? As of my last knowledge update in September 2021, the United Kingdom had an inheritance tax (IHT) system in place. However, please note that tax laws are subject to change, and it's essential to verify the most current information with official sources or a tax professional. That said, here is an overview of how inheritance tax in the UK generally works: Thresholds and Rates: In the UK, inheritance tax is a tax on the estate (money, property, and possessions) of a deceased person. Currently, there are two thresholds for inheritance tax: Standard Nil Rate Band: This is the threshold up to which no inheritance tax is charged. As of 2021, the standard nil rate band is £325,000. Residence Nil Rate Band: This additional threshold applies when a main residence is left to direct descendants, such as children or grandchildren. As of 2021, the residence nil rate band is £175,000. The standard and residence nil rate bands can be combined to determine the total tax-free allowance for an individual's estate. 2. Tax Rates: Once the value of the estate exceeds the combined nil rate bands, inheritance tax is applied to the remaining value at the applicable rate. As of 2021, the inheritance tax rate is typically 40% on the portion of the estate above the combined nil rate bands. 3. Exemptions and Reliefs:

2. Certain assets and circumstances may be exempt from inheritance tax or eligible for special reliefs, reducing the overall tax liability. Some common exemptions and reliefs include: Gifts to a spouse or civil partner: Transfers to a spouse or civil partner are usually exempt from inheritance tax. Gifts to charities and qualifying organisations: Gifts to registered charities and certain other qualifying organisations are generally exempt. Annual exemptions and small gifts: There are various small gifts exemptions that allow individuals to give away limited amounts each year without incurring inheritance tax. Business Property Relief (BPR) and Agricultural Property Relief (APR): These reliefs can provide a reduction or exemption from inheritance tax on certain business or agricultural assets. 4. Executors and Filing: The responsibility for calculating and paying inheritance tax falls on the executors of the deceased's estate. They must report the value of the estate and any inheritance tax due to Her Majesty's Revenue and Customs (HMRC). 5. Payment of Tax: Inheritance tax is typically due for payment within six months of the end of the month in which the deceased passed away. In some cases, it is possible to pay the tax in instalments, especially when the estate includes certain assets like property. It's important to note that the rules and thresholds for inheritance tax may have changed since my last update, so I strongly recommend consulting official government sources or seeking advice from a qualified tax professional for the most current and accurate information.