Inheritance Tax

Matthew was devastated when Alina died

"We knew it was going to happen, she had been diagnosed with cancer the year before. She was a very practical woman and she made sure her will was up-to-date, and re-filed all her papers so that I would be able to find everything.

We tried to prepare ourselves for what would happen. She told me what she wanted to me to do after she had died. She even wrote out what songs she wanted at her funeral. It may sound a bit cold but it wasn't, it was just her way of coping and of trying to help me cope.

When I started trying to sort out her affairs, I was shocked. Before I can even start, I have to pay a huge inheritance tax bill. I don't know how I can find the money. I don't want to have to sell our home. We've been here for 16 years and we spent so long decorating and making it ours. It's where all my best memories are, and it's our children's home."

Inheritance tax is no longer just a problem for the filthy-rich: with the rise in house prices, more and more ordinary people are finding themselves landed with a bill.

It is particularly a problem for cohabiting couples. Unlike married couples or civil partners, couples that live together potentially have to pay tax on anything that they inherit from each other.

In this leaflet, we’ll show you how Inheritance Tax works, how it is charged, and what action you can take to avoid leaving your partner with a whacking great Inheritance Tax bill to remember you by.

Is it something I need to worry about?

It may be. Inheritance Tax is charged on any estate worth over £312,000 (for 2008-9). This is the 'nil rate band' and it usually goes up every April. Add up everything you own, including your half of the things you own jointly with your partner; if it currently comes to over £300,000 you do need to be thinking about it.

How bad is it?

It’s fair to say that it can be a pretty painful bill to land on your doormat. Anything over the nil rate band gets taxed at a rate of 40%. This can take a significant bite out of your inheritance, which may not be so bad if you’re inheriting from a parent or friend; but if it’s your partner, it can have drastic effects. It can mean you have to sell the home you’ve made together.

The good news is that, with a little tax planning, you can reduce the amount or even avoid a bill altogether.

Download our LivingTogether & Inheritance Tax guide (337 KB) for more information.