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Every Tuesday, we get an expert to answer your financial problems or consumer disputes – email yours to moneyblog@sky.uk. Today’s is…
My wife and I have a house, private pension and ISAs, collectively worth about £1m. If we die together, does inheritance tax have to be paid on that? If one of us dies first and later the remaining person dies, how much of that £1m is liable for inheritance tax?
Currysteve
Money live reporter Jess Sharp tackles this one…
While inheritance tax can be a costly bill, it’s important to remember that most families do not have to pay it at present.
Around one in 20 estates have to pay inheritance tax – that’s roughly 28,000 a year, according to government figures released in July.
Inheritance tax is due when you leave a home, possessions and money that is valued above £325,000 to your loved ones when you die.
There is no tax if your estate’s value is below that threshold or you leave your estate to your spouse or civil partner, or an exempt charity or group.
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The tax is charged at 40% – but only on the part of the estate that lies above the threshold.
For example, on an estate worth £335,000, the tax would apply to the additional £10,000, so you would pay £4,000.
On top of the tax-free allowance of £325,000 – or the nil rate band – you also have the £175,000 tax-free amount for people who leave their property to a direct descendant.
Bear in mind that if you are married or in a civil partnership, any allowance you don’t use can be added to your partner’s allowance when they die.
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This means a couple can pass on as much as £1m without their estate being subject to inheritance tax.
Based on the information you’ve given, pensions expert at AJ Bell, Charlene Young thinks it’s unlikely that your estate will face any inheritance tax based on current values.
But she warns it ultimately depends…
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