Inheritance tax is the tax levied on the estate of a deceased person. Estate entails the property, money, and possessions of the deceased individual. There are two conditions under which no inheritance tax has to be paid: 1) the person’s estate value is below pounds 325,000; and 2) the deceased person has left everything above pounds 325,000 to their spouse, civil partner, or a non-profit organization like a charity or a community amateur sports club. The standard inheritance tax in the UK is 40%. 

This blog walks you through how to calculate inheritance tax and how to use an inheritance tax calculator.

How is Inheritance Tax Calculated?

There are the following steps that you need to follow in order to know the approximate amount of the inheritance tax that you have to pay.

Correctly estimating the estate’s value

Correctly estimating the joint assets

Working out the value of a gift

Deducting debts, if any

The first step towards calculating inheritance tax is correctly estimating the value of the deceased's money, property, and possessions. These may include valuable assets like homes, other properties, money in banks or building societies, shares, and so on. Their assets have to be counted until the day the person had die. Check if the deceased has made any gifts like cash or valuable items in the 7 years before they die.

Correctly Estimating The Joint Assets

If the person owns a joint asset with someone else, then you need to consider that as well to Calculate Inheritance Tax. A joint asset means that both parties held the asset equally. If one owner dies, the joint asset is automatically transferred to another.

Though the rules that determine the value of a joint asset like property, jewelry, or paintings vary depending on whether they are owned as joint tenants or tenants in common. In joint tenants, assets are passed automatically to the other partner when one of the owners dies, the rules for tenants in common differ, where they are not automatically passed on their joint assets.

Working out the value of a gift

A gift involves money, property, personal goods, stocks and shares listed on the London Stock Exchange, and unlisted shares that were held less than 2 years before the person's death.

Gifts are counted when they were made 7 years before the person died and when the total value of the gift is over the $3,000 annual exemption. Hence, if a person lives for 7 years after making a gift, that person does not have to pay inheritance tax.

A person does not have to pay inheritance tax if the gift is paid to charities or political parties.

The appropriate method for estimating the correct value of a gift through the Inheritance Tax Interest Calculator is to take into account the near-around value of the gift when it was made and the gift with reservation.

Deducting debts, if any

It is advisable that you do not take into account the debt that the person owns when calculating inheritance through Inheritance Tax Calculator Uk. However, HM Revenue and Customs (HMRC) needs to be informed regarding the debts that the deceased person has.

Debts can include anything ranging from mortgages, loans, or liabilities like household bills or bills for goods, etc.

What is an inheritance tax calculator, and how to use it?

An Inheritance Tax Uk Calculator is used to estimate the amount of inheritance tax. The calculator first requires basic information, like the total value of the asset, debts, any gifts made, etc. The calculator will further use the information regarding the amount of the inheritance tax owed.

The following are the steps that are required to be followed while using the inheritance tax calculator:

Gather information about the deceased's estate.

Using a reputable calculator specific to your location

Carefully going through the instructions set on the calculator will yield more accurate results.

Though an inheritance tax calculator is available online to get an estimate of the inheritance tax, consulting a tax professional is always recommended. They are well-versed in dealing with inheritance laws, have previously dealt with many clients, and are experienced enough to handle different cases. They will guide you accurately in calculating the exact amount of tax you need to pay.

Wrapping Up

To quickly calculate the inheritance tax, if you owe any, using an inheritance tax calculator proves to be helpful. Though use a calculator to only get a fair estimate on the inheritance tax, do not rely on it solely. Hiring estate planners will guide you in calculating inheritance tax and assist in inheritance tax planning.