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Inheritance tax was initially introduced in the United Kingdom as a tax on the estates located in Wales and England as early as 1796. It was known as succession, estate or legacy duties. The taxable amount underwent a change over the years and so did the ambit of the estate duty. Death duties were implemented in 1894 and subsequently this led to the disintegration of large estates over the next century. The Capital Transfer Tax replaced the imposition of estate duty in 1975 and was known as Inheritance Tax. Inheritance tax, at one point of time, constituted approximately 0.8% of the state income.

Inheritance tax is usually paid when the owner of the estate dies. It is also applicable on gifts and trusts that are created during one’s lifetime. A majority of the estates need not pay inheritance tax as they are valued at a sum that is less than the designated threshold amount fixed at £325,000 for the year 2010-11.

The tax is typically paid by the personal representative or an executor who pays it from the estate of the deceased individual. The trustees are responsible for the payment of the inheritance tax on assets that forms a part of the trust.

It is necessary to evaluate the estate before determining the amount of inheritance tax payable. Inheritance tax planning in advance also helps to make optimum use of the tax relief and exemptions. If your estate value is close to the threshold amount, then you can pass on certain assets, by virtue of the exemptions, without being obligated to pay the tax.

There are exemptions for small gifts, wedding and civil partnership gifts, charity and annual exemptions. Woodlands, heritage properties, certain businesses and farms are often exempted from inheritance tax. It is necessary to take the help from a solicitor to have a clear idea about inheritance tax.