What Should You Know About Inheritance Tax?
Inheritance tax isn’t something we’ll all face. If a relative has passed away and left you their estate, this is already a trying time that you don’t need any other difficulties with. Depending on your position in a family, having a relative leave something to you will either have taxes associated with it or not. It can seem a bit of a niche area however, so below are a few pointers for where to start when it comes to dealing with inheritance tax.
What It Actually Is
First, inheritance tax comprises the ‘estate’ someone has left over when they have died, which includes both money and possessions. You won’t have to pay inheritance tax if it’s under a certain bracket, and a lot of people probably won’t reach this bracket. In the UK this is £325,000 and in the USA it’s $5.45 million. Knowing exactly what’s included in an estate can be a little tricky, so read on below if you need some tips.
What Counts Towards An Estate
Find the market value of the possessions left behind at the time they were in use. This will probably have to be done via a professional, but if you know an estate is below an amount of roughly 200,000 this can be done via guestimate.
Any debts need to count against the value of an estate. Exhaustive lists of everything you need to consider when valuing an estate can be found across the net, so don’t be dismayed if you don’t know where to start. Similarly, items that have been given away in the form of gifts also count towards the value of an estate, so have a track of these within the last few years. If any gifts given away before this time are still beneficial then these must be counted as well, even if they were given away a long time ago.
If you are using a professional, keep a record of their involvement.
How To Find Out What You Need To Pay
No one truly enjoys having to do their taxes. There’s so many deductibles you need to work out, and often you have to hire the services of an accountant to show you where to begin. However, when it comes to something hefty like inheritance tax, the steps can be made simpler once you can calculate your inheritance tax liability. Using handy online tools can show you where to begin.
If you’re a spouse and an estate has been left to you, you won’t have to pay any inheritance tax. Tax is also bypassed if a sum is left to a charity, which is considered a beneficiary and also not related to you. As children or grandchildren however, inheritance tax is likely to affect you. If you do have to pay tax, it usually has to be filed within the next 6 months. Interest rates can affect the amount you need to pay if it’s not filed at this time, so pay it asap.