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History lesson

Inheritance Tax matters

Inheritance Tax was introduced in the UK in 1796 and stemmed from the influence of the French Revolution. The concept of IHT was supposed to protect poorer members of society and interrupt the legacy of inherited wealth.

When the tax was first introduced, it was known as ’legacy, estate and succession duties’ and was collected on properties worth over a certain value. By 1857, this value had settled at £20, but duties were rarely collected on properties under £1,500. The duties evolved into death duties in 1894 and did have a significant role to play in breaking up large estates in the UK. In this sense then, the original aim of the tax yielded some results.

Recent history of the tax includes the introduction of Capital Transfer Tax in 1975, which was renamed Inheritance Tax in 1986.

Rules for IHT which took effect from October 2007 mean that married couples and registered civil partners can now make use of each other’s tax-free allowance without special tax planning.

In 2010, further changes to IHT were made, increasing the nilrate threshold to come into line with rising house prices.

IHT is paid if a person’s estate (their property, money and possessions) is currently worth more than £325,000 when they die. It doubles to £650,000 for a married couple or registered civil partnership – as long as the first person to die leaves their entire estate to their partner. This is called the ‘Inheritance
Tax threshold’.

The rate of Inheritance Tax is 40% on anything above the threshold. The rate may be reduced to 36% if 10% or more of the estate is left to charity.

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