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. It's not pleasant to think about mortality, but it's even worse when you consider that the state could take a sizeable portion of your assets in the event of your death. 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 limits of inheritance tax?
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. In order to not be declared as domiciled, you must do everything in your power to show that your new home is permanent; some examples would be to purchase property there while selling anything you own in the UK, or have a will made that complies with regulations in your new country.

By removing any connection to assets back home, you're making it hard for the British tax system to declare you as domiciled there. Investing abroad shows that you're focusing on a life in a new country, hopefully showing the British tax office that you're no longer under their jurisdiction. Whether you're working alone or seeking the advice of a financial professional, do what you can to make sure you don't overpay when it comes to inheritance tax.

To learn more about inheritance tax and inheritance tax liability please visit our site.