Inheritance tax may be defined as the tax charged on the value of the a person's estate after that person's death. It is a state tax based on the value of property passing to each heir and it differs from the estate tax in that the the
estate tax is a net value tax, while the inheritance tax determines the tax rate and the exempt amount. The inheritance tax threshold is generally fixed by the state, and any property whose valuation is higher than that is liable for inheritance tax after the death of the owner. As property prices are increasing more than ever, property assets of more and more people have crossed the state fixed inheritance tax threshold. The heirs of the deceased person must pay the inheritance tax at a rate of 40% on the asset amount that is above the threshold limit.
Avoiding inheritance tax is becoming difficult, due to a huge increase in property prices. There are some strategies that people employ to avoid inheritance tax, but they are advised to consult with skilled professionals, as inheritance tax is a complicated issue.
Making a will is necessary, although it may not help minimize the inheritance tax, but it will make the intentions of the owner clear and help in the legal processing of the inheritance tax. Transfer of property between spouses may be helpful to lessen the inheritance, but on the other hand it will increase the value of the surviving partner's asset.
Bequeathing the estate to children, rather than spouse, may be helpful to avoid inheritance tax to some extent, but it may be legally complicated. Gifting to children under the "inheritance gift with reservation" or giving away gifts to friends and relatives, known as "potentially exempt transfers," may also help to reduce the inheritance tax.