If you live in the UK or have done so previously, your estate could well end up liable to pay a large amount of inheritance tax in the event of your death. Considering your humanity isn't a happy thought, but thinking that your assets could be taken by the government instead of being passed to your friends and family is equally troubling. Thankfully there are several ways of limiting the amount of inheritance tax your estate will have to pay, some of which you can organise yourself and some that require the assistance of a professional.

What are the current inheritance tax regulations?
As of the 2012-2013 tax year, those people resident in the United Kingdom are entitled an allowance of up to ?325,000 before being taxed. As of this tax year (2012-2013), you won't actually have to pay any inheritance tax if your estate is valued below the threshold of ?325,000; the vast majority of estates fall under this barrier, but anything over is immediately taxed at a rate of 40%. The executors of your estate will be responsible for any payment required but, as mentioned before, you can cut your inheritance tax liability in many ways.

One way to limit liability is to leave your assets to your spouse which immediately exempts your estate from having to pay anything bequeathed, even if it exceeds the ?325,000 limit. Gifts to newly married couples are also covered, but the best way to keep yourself covered involves some simple forward planning. Any gift of any value will also be declared exempt as long as you survive for seven years after it has been given; a very useful thing to consider if you hold large amounts of money or valuable property.

Do I have to pay inheritance tax if I'm based abroad?
For people who have previously lived in the United Kingdom but are now resident abroad, the rules are slightly different. Inheritance tax concentrates on where you are deemed 'domicile', meaning that you could still be held liable under UK law even if you're living overseas, and that includes everything you own worldwide. Purchasing property abroad, making a will under the regulations of your new homeland and selling off some UK-based assets are all ways of showing that you've changed your domicile, but it's still not guaranteed that the tax office will let it go in the event of your death.

While it's not certain that the tax office will definitely change your status, severing many of your economic connections to the UK will help you get your estate under that monetary limit. Like UK residents, you can also use gifting to come in under the monetary limit and ensure that those left behind will be well taken care of without the taxman taking a chunk. You'll want to leave as much as you can for your family, so do whatever possible to make sure it's not eaten away by inheritance tax.

Please visit our website to find out more about inheritance tax and inheritance tax liability.