Final answer:
The Inheritance Tax (IHT) payable on an estate valued at £340,000 distributed half to the children and half to the spouse is £0 because the amount given to the children is below the £325,000 threshold and the spouse is an exempt beneficiary.
Step-by-step explanation:
The question pertains to the calculation of Inheritance Tax (IHT) payable on an estate valued at £340,000 when distributed between a deceased individual's children and spouse. An inheritance tax is a tax on the estate (the property, money, and possessions) of someone who has died. The standard inheritance tax rate is 40%, charged on the part of the estate that's above the threshold of £325,000. However, there are some exemptions and reliefs that can lower this tax liability.
One significant relief is that if you leave your entire estate to your spouse or civil partner, there usually is no IHT to pay because they are exempt beneficiaries. Additionally, if the estate is worth less than the £325,000 threshold, no inheritance tax is due at all.
In this scenario, half of the estate (£170,000) is being paid to the deceased's children. Normally, this would potentially be subject to IHT if it exceeds the threshold. However, the remaining half is paid to the spouse, who is an exempt beneficiary. If the £170,000 paid to the children does not exceed the IHT threshold, which it does not (£170,000 < £325,000), then no Inheritance Tax is payable on the amount given to the children or the spouse.
This means in the described situation, the total IHT payable is £0. It is important to note that this assessment is based on current tax laws and thresholds, which can change. It also assumes there are no other reliefs or exemptions applicable, no gifts made within seven years before death, and the deceased had not used any of their threshold against a previous estate.