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Home / Legal principles of life insurance / - Inheritance Tax

The way the tax works is that all chargeable transfers after 26 March 1974 are totted up and tax is payable once the threshold is reached.

However, once a transfer is more than seven years old it drops out of the totting-up.

When death occurs, the estate left is added to the total of non-exempt lifetime gifts in the previous seven years in order to find the tax rates applicable. In some circumstances this 'cumulation period' can be as long as 14 years. The rate of tax currently charged on death is 40%.

The following table shows the different thresholds in use for deaths between 1990 and 2010.

Tax Year Threshold

06.04.1990 to 05.04.1991
£128,000
06.04.1990 to 05.04.1991
£128,000
06.04.1991 to 05.04.1992
£140,000
10.03.1992 to 05.04.1995
£150,000
06.04.1995 to 05.04.1996
£154,000
06.04.1996 to 05.04.1997
£200,000
06.04.1997 to 05.04.1998
£215,000
06.04.1998 to 05.04.1999
£223,000
06.04.1999 to 05.04.2000
£231,000
06.04.2000 to 05.04.2001
£234,000
06.04.2001 to 05.04.2002
£242,000
06.04.2002 to 05.04.2003
£250,000
06.04.2003 to 05.04.2004
£255,000
06.04.2004 to 05.04.2005
£263,000
06.04.2005 to 05.04.2006
£275,000
06.04.2006 to 05.04.2007
£285,000
06.04.2007 to 05.04.2008
£300,000
06.04.2008 to 05.04.2009
£312,000
06.04.2009 to 05.04.2010
£325,000

 

Lifetime Transfers

IHT is charged on the value transferred by a chargeable transfer.

A transfer of value is any disposition made by a transfer or by which the value of his estate immediately afterwards is less than it would have been if the disposition had not been made.

 

The tax therefore affects only dispositions in the nature of a gift or part gift, and does not affect commercial transactions where full consideration is received, as there is then no loss to the estate. For lifetime transfers the tax rate is currently 20%.

Definitions

Per capita means by the head.

Per stirpes means by descent. It is inherited through their parent and not by their own right.

Where property divides per capita, it is divided into as many shares as there are children. Where per stirpes, the share that would have fallen to the predeceasing parent, if alive, is divided equally among his/her children.

`Child' and `children' include a child or children adopted by the deceased under the Adoption of Children Acts.

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