Inheritance tax is the tax paid by individuals or families who have inherited something of a deceased person. Heirs pay after the death of a particular individual who has passed on the property to them.
A common misconception is that the inheritance tax and estate tax are the same. However, this is not so, as the inheritance tax in UK is not levied on the entire estate; it is only to be paid on the property that is passed as a legacy. Inheritance tax is also known as Death Duty.
Inheritance tax applies to something valuable, which is part of the legacy. This can include property, jewelry, collectibles, and even intangible assets, such as investments and life insurance. In case of death, the surviving family instantly becomes liable for inheritance tax, because they become the owner of the property. Also, the dying can specify the recipient in his/her will, which then becomes responsible.
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If someone dropped the property to someone at least seven years before his death, then there is no tax levied on the property. Similarly, if the property or assets were transferred to a spouse or children, they are exempt from taxes. In addition, there is no inheritance tax imposed on life insurance policies for children.
Inheritance tax has always remained under criticism and most people are against it. Many of the view that it is unfair to put this burden on the family of the deceased who has suffered losses. In most cases, the tax is quite high, sometimes even being around forty to fifty percent of the value of assets. Thus, it is important to apply inheritance tax planning to reduce this burden.