Equity Release and Inheritance Tax 2025: Key Considerations
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Key Takeaways...
- Inheritance tax in the UK is calculated on the net value of an estate, over the tax-free threshold of £325,000, and is charged at 40%.
- Tax exemptions include gifts to spouses or civil partners, donations to charities, and certain business and farm assets.
- It is typically payable within six months after the end of the month in which the deceased passed away.
- Reducing tax liability can be achieved through various strategies such as gifting assets, setting up trusts, or taking out life insurance policies to cover the tax.
- Equity release can affect inheritance tax, as it reduces the value of your estate, potentially lowering the amount of tax payable upon your death.
How much inheritance tax is payable?
That is the big question that many clients ask when deciding what to do with their estate.
If you want to make sure your family does not pay anything more than necessary, you must have the right information on hand.
See how much inheritance tax is payable in 2025 and how it all works.
In This Article, You Will Discover:
We have gathered all the important information that you need to know about the implications of inheritance tax in 2025.
Therefore...
How Much Could Your Estate Be Taxed?
How much your estate could be taxed depends on various factors, including the size of your estate and it's location.
Some regions have no taxation, while others generally have rates as high as 16% to 18%. This is for indicative purposes only.
Generally speaking, the amount of inheritance tax you may owe is higher if your estate exceeds a certain threshold.
In addition to the total amount of your debts at the time of your death, the cash value of your estate includes any property or asset you own.
The size and type of the inheritance may also have a bearing on how much tax is payable.
Great news!
Note that there are certain exemptions for estates below the value of £325,0001.
Keep this in mind, as it may eliminate the need for you to pay any inheritance tax at all.
The exemption amount changes periodically, so make sure you remain up to date.
If your estate does not exceed the threshold, no inheritance taxes will be due, and nothing else needs to be done.
Who Pays Inheritance Tax?
Inheritance tax is due by the beneficiaries2 of an estate.
A beneficiary can be a spouse, civil partner, or child - anyone who inherits what remains after administration costs and debts are paid off from an estate.
Co-owners may still have to pay inheritance tax if they die without transferring their share to the other joint owner.
This is even if no other capital assets exist in their own right.
What is a Beneficiary?
A beneficiary is someone who receives property or money when the person who owns it passes away.
For example, if you leave your home to a child in your will, they become the beneficiary and inherit it from you upon death.
The term "beneficiary" does not refer to any of your heirs at law unless they are specifically named as such under marriage, civil partnership, or adoption.
It is a common misconception that being married means you automatically become a beneficiary; this is not the case.
There are some other complicated factors here, so make sure to ask an estate lawyer for more information.
There may even be a need for what is called a marital trust3.
The Amount of Inheritance Tax Depends on Your Situation
If you have inherited property, the value of that inheritance will be added to your estate4 for tax purposes.
Inheritance tax may also apply if any other assets are transferred into an individual's estate by a person who has passed away, and exemptions or reliefs do not cover this.
In such cases, it would depend on whether there were enough remaining assets to cover all debts with no outstanding liabilities to beneficiaries left over.
The amount of inheritance tax that you owe will also depend on the size of your estate.
If it is worth more than £325,000 and includes items that are considered to be a business asset or close corporation5 shares with an indefinite life span, then you may need to pay inheritance tax.
Pensioners who have reached the state retirement age (currently 65)6 and have personal income that is less than £17,500 per annum will owe no inheritance tax if their assets total less than this threshold.
What Happens if I Do not Pay Inheritance Tax?
If you do not pay inheritance tax by the deadline date - usually within twelve months from the date that someone dies - then HMRC7 could charge up to 100%.
It is important for anyone who has not paid their taxes in time to make arrangements as soon as possible to avoid facing steep charges.
Even though there are many different factors involved with how much inheritance tax is payable, understanding these ahead of time can help you save money in the long run.
How Could Equity Release Affect Inheritance Tax?
Equity release can affect inheritance tax because it is a way to borrow against the value of your home.
In the case that you owe some inheritance taxes and sell your house to pay them off, you will not be liable for capital gains or inheritance taxes.
However, if you do not have enough equity in your property for this purpose, borrowing is an option that can be considered before resorting to selling.
The amount borrowed must be repaid through regular payments made over time.
Equity release can help pay these fees upfront8 so that they are not taken out of the remaining assets when someone passes away without making provisions.
Using Equity Release to Reduce Inheritance Tax
If your are worried about the inheritance tax payable on your estate, then you may want to consider how equity release and inheritance tax would work to decrease the amount of your estate.
For example, the interest on equity release plans is usually tax-deductible9, and there are no inheritance taxes or probate fees to pay.
You can also use it as a way to gift money.
Using Equity Release for Gifting
When you gift equity release, it is a way to transfer shares in someone's property while still alive.
By transferring shares in someone's property, your are allowing them to leverage their home as collateral for an additional loan.
They will not have to deal with inheritance tax or other restrictions if they inherit assets through probate.
Finally, equity release can help alleviate pressure on family members who may need more funds by borrowing against their house at any point during their lifetime.
Common Questions
How Much Is the Average Inheritance Tax?
What Can I Do to Reduce the Amount of Inheritance Tax That's Payable on My Estate?
Can I Pay My Inheritance Tax in Instalments?
How Is Inheritance Tax Calculated in the UK?
What Are the Exemptions from Inheritance Tax?
When Is Inheritance Tax Payable in the UK?
How Can I Reduce My Inheritance Tax Liability?
Does Equity Release Affect Inheritance Tax Payable?
In Conclusion
It is important to note that the inheritance tax rate law shifts and may depend on factors like your relationship with the deceased.
If you have questions about how much inheritance tax is payable in your situation, contact a qualified estate planning attorney or financial adviser for more information.
They will know exactly what steps need to be taken depending on where you live and other assets involved besides just an inheritance from someone who has passed away.
Finally, knowing how much inheritance tax is payable allows for better financial planning!