Introduction to inheritance tax

By Tolley
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The following Trusts and Inheritance Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Introduction to inheritance tax
  • Introduction to inheritance tax

Introduction to inheritance tax

Inheritance tax is a tax on the transfer of wealth. Such a transfer occurs when a person dies and all the property that he owns (his estate) passes to beneficiaries. Hence the term ‘death duties’. An individual may also transfer his wealth to new owners during his lifetime. This could be an outright gift of assets to another person or a gift into trust.

Assets in trust are held by trustees for the benefit of others, whose entitlement to them is restricted in some way. Special inheritance tax rules apply to trusts to reflect the separation of legal and beneficial ownership.

Inheritance tax is a tax on the donor, that is the person who is transferring his wealth. It is calculated with reference to his estate. It is not a tax on the beneficiaries, though what the beneficiaries receive is obviously reduced by the amount of tax. This position contrasts with the law in certain other jurisdictions where ‘death duties’, gift tax or the equivalent are a tax on the people receiving the property and is taxed in accordance with their status or wealth. Clients who receive an inheritance often ask if they have to pay tax on it. Generally, the answer is ‘no’ because any tax due has fallen on

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