Inheritance Tax is payable on death on the value of the assets transferred to your beneficiaries. The Tax man will also include all gifts made seven years before death. If you die within seven years of a gift then there could be Tax to pay. (This is known as a "Potentially Exempt Transfer") So, if you give your number one son £50,000 today the money is "Potentially Exempt" from Tax because if you live for seven years there is no Tax to pay. If you die within seven years there will be Tax to pay on the gift on a sliding scale. Everything between spouses is free of Tax, but on second death Tax is payable at 40% on everything over £300,000.

Gifts or Transfers which are exempt

• Between spouses. You can leave your entire estate to each other and there is no Tax to pay. It's on the second death when they get you.

• If the total value of the deceased estate (Including chargeable transfers seven years before death) does not exceed the personal allowance which is currently £300,000.

• Gifts made over seven years before the date of death.

• Lifetime gifts which represent normal expenditure out of the transferrer's income.

• A gift of £3,000 each tax year.

• A gift to any one person in a tax year up to the total value of £250.

• Gifts in consideration of marriage. Wedding gifts by a parent to their child are exempt up to £5,000; by a grandparent up to £2,500; and by most other people up to £1,000.

• Gifts for the maintenance of children or other dependant relatives payable out of normal expenditure.

• All gifts and bequests to charities.

• Gifts and bequests made to certain bodies concerned with the preservation of the national heritage or of a public nature.

• There are exemptions and reliefs for particular types of property, notably business property, agricultural land, woodlands, works of art and historic houses.

How it is calculated?

someone who dies with an estate valued at £375,000 the Tax would be calculated as follows.

Estate Value £375,000
Less allowance £300,000
Estate Liable £75,000
Tax at 40% = £30,000 to pay.

Someone who dies with an estate valued at £550,000 the Tax would be calculated as follows.

Estate Value £550,000
Less allowance £300,000
Estate Liable £250,000
Tax at 40% = £100,000 to pay.

Note:   With most estates of up to £600,000 the Tax can be eliminated utilizing your personal allowances in your Will.

e Tax. Things you can do to Reduce or Eliminate your Tax Bill

• Spend it or give it away at least seven years before death. The money we have usually provides an income or is tied up in our homes. Since most of us don't know when we are going to die spending or giving it away is not normally a practical solution

• Leave it to registered charities (such bequests are exempt of Tax)

• Pay the Bill.

• Invest some of your liquid assets in Trust governed instruments, such as life assurance Investment Bonds. These also constitute potentially exempt transfers but without immediate ownership passing to the nominated beneficiaries.

• Utilize your personal allowance and give away up to £300,000 on each death. This will save your beneficiaries £100,000 Tax and if put into a Will trust the money can still be made available to the surviving spouse.The survivor has access to the income from the trust and could be granted the right to take interest-free, lifetime loans from the Will Trust.

• Accept the liability and pre-fund it by way of a Joint Life second death Whole of Life Assurance.  The policy is written into Trust so owned by your beneficiaries. The proceeds are paid direct to them on death and used to pay the Tax.

  
  Inheritance Tax is an avoidable Tax as long as Professional guidance is taken
  
  There are also income & capital gains Tax implications when setting up the trust (after 1st death) which should be considered.
  
  For more information you can contact the Capital Offices Inheritance Tax helpline on 0115 9742400.