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Inheritance tax is a tax paid by individuals, or families who have inherited something from a deceased person. The heirs pay it after the death of a certain individual who has passed on his property or estate to them.

A common misconception is that inheritance tax, and estate tax are the same. However, this is not so, as the inheritance tax is not levied on the entire estate; it is only to be paid on the property that is passed on as inheritance. Still, in some countries, such as the UK, the two are not very distinct from each other. Inheritance tax is also known as Death Duty.

Inheritance tax concerns valuable things, which are part of an inheritance, such as property, jewellery, collectable items, and even intangible assets, like investments and life insurance. As far as the UK is concerned, this tax is levied on inheritances worth 325,000 or higher. The instant surviving family becomes responsible for the inheritance tax, in case of a death, since they become owners of the property. In addition, a dying person can refer to the beneficiary in his/her will; the beneficiary then attains responsibility.

Inheritance tax has not to be paid in some instances. If a UK citizen has resided in a foreign country for more than three years during a twenty-year tax period, then paying this tax is not mandatory for him. Moreover, if the assets are overseas, no tax is applied.

In case an individual handed down a property to someone, a minimum of seven years prior to his death, then there is no tax levied on that property. Moreover, if a property or assets are relocated to spouses or children, they are exempt from taxes. In addition, there is no inheritance tax on life insurance policies meant for children.

People usually criticise inheritance tax, and are against it, because they believe that it is not fair to put such a burden on the family of the deceased, who has already suffered a loss. The amount of tax can be very high, sometimes even being around forty to fifty percent of the whole asset value. Hence, implementation of inheritance tax planning to decrease this burden is very important.

There are many ways to reduce inheritance tax. Firstly, it is important to write a will, and specify who your heirs are, so that there is no confusion later on. It is also a good idea to transfer your estate into life insurance funds, or trusts on which, tax does not have to be paid. In this way, the spouse as well as the further generations can benefit from your estate. They will receive regular income without the burden of the tax, as they will not own the entire estate.

Another good option would be to engage your money in investments that are charged with a lower tax rate. Use the granted annual allowances through gifts. You can aid your family without the trouble of inheritance tax, by gifting from your estate, since those presents are exempted from taxes.

Simon P Jennings is a personal insurance consultant. Take professional services to learn how to avoid Inheritance Tax Trust from your property at http://www.claimsadvicecentre.com.

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