This is a tax that could be payable when you die and depends on the value of your taxable ‘estate’, which is basically the value of everything you owned when you died (and can include any savings and investments, property, your home, car, jewellery etc.) and the value of certain gifts you made in the 7 years before you die, less anything you owe (mortgage, loans, etc.). The current ‘threshold’ or allowance is £312,000 (2008/2009 tax year). Everything over this amount may be taxed at 40%.

Whilst this tax is not usually payable on any part of your estate that is passed to your spouse or registered civil partner, if you are unmarried or passing your estate to anyone else such as your children or a friend they could get caught out, especially as this tax usually has to be paid before they can receive anything from the estate. Similarly, inheritance tax might have to be paid on any inheritance you receive from a parent or other relative.

Whilst this tax used to only be paid by the very rich, many people who wouldn't consider themselves wealthy now have estates which are potentially liable for inheritance tax due to the rise in house values in recent years.

The good news is that there are ways that you can reduce your potential liability or even eliminate it altogether and you should be able to get advice on this from most professional advisers. Don’t forget how important it is to make a will, so you can make sure you leave your estate to exactly who you want to benefit.

Tax laws may change in the future.