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What is inheritance tax and how does it work?
Inheritance tax (IHT) is a tax on the estate of someone who has died. It is charged on the value of the estate above a certain threshold, which is currently £325,000. If the estate's value exceeds this threshold, the excess is taxed at a rate of 40%. There are various exemptions and reliefs available, which can reduce the amount of tax owed.
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What are the current inheritance tax rates in the UK?
As of 2024, the standard inheritance tax rate is 40% on the value of an estate above the nil-rate band of £325,000. However, if the estate includes a home that is passed to direct descendants, an additional main residence nil-rate band may apply, increasing the threshold to £500,000.
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How does agricultural property relief benefit farmers?
Agricultural property relief (APR) allows farmers to reduce the value of their agricultural property when calculating inheritance tax. This relief can cover up to 100% of the value of qualifying agricultural land and buildings, which is crucial for farmers looking to pass their businesses to the next generation without incurring heavy tax burdens.
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What changes have been made to inheritance tax in recent years?
Recent changes to inheritance tax include the Labour government's decision to scrap agricultural property relief for farms valued over £1 million. This policy aims to address tax avoidance but has faced backlash from farmers and rural communities who argue it threatens their livelihoods and the future of family farms.
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What are the implications of the recent inheritance tax changes?
The recent changes to inheritance tax, particularly the removal of agricultural property relief, have raised concerns among farmers and Conservative leaders. Critics argue that this new tax policy could lead to financial ruin for family farms, while supporters claim it is necessary for raising government revenue. The debate highlights the divide in perspectives on how inheritance tax should be structured.
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How can I plan for inheritance tax?
Effective estate planning can help mitigate the impact of inheritance tax. This includes making use of exemptions, such as gifts made during your lifetime, and considering trusts or other financial instruments. Consulting with a financial advisor or estate planner can provide tailored strategies to minimize tax liabilities.