Inheritance Tax (IHT) may be payable when a person dies and the total value of their estate exceeds the available tax-free thresholds. The estate includes property, savings, investments, and certain gifts made during lifetime.
Careful planning can significantly reduce or eliminate an IHT liability.
IHT is generally charged when the value of an individual’s estate exceeds the nil rate band available at death.
Transfers between UK-domiciled spouses or civil partners are normally exempt from IHT, both during lifetime and on death.
Additional allowances and reliefs may be available depending on personal circumstances, family arrangements, and asset types.
The current IHT thresholds are:
Standard nil rate band: £325,000
Residence nil rate band: Up to £175,000 (available when a qualifying home is passed to direct descendants)
Any unused nil rate band from a first spouse or civil partner can usually be transferred to the surviving spouse, potentially doubling the tax-free allowance.
| Rate | % |
|---|---|
| Lifetime rate | 20 |
| Death rate | 40 |
| Death rate if sufficient charitable legacies made | 36 |
Some gifts are exempt from IHT regardless of when death occurs:
| Gift from | Amount (£) |
|---|---|
| Parent | 5,000 |
| Grandparent | 2,500 |
| Other spouse/civil partner | 2,500 |
| Other | 1,000 |
Certain assets qualify for reliefs that reduce their value for IHT purposes:
Business Property Relief (BPR) – for qualifying business assets
Agricultural Property Relief (APR) – for qualifying farming assets
Charitable gifts – exempt from IHT and may reduce the overall rate
These reliefs can be highly valuable but are subject to strict conditions.
Gifts made during an individual’s lifetime may still be subject to IHT if the person dies within seven years of making the gift.
Some lifetime gifts are immediately exempt, while others become exempt only after surviving seven years.
If death occurs within seven years of making a gift, the tax payable may be reduced depending on how long the donor survived:
| Years before death | % of death charge |
|---|---|
| 0-3 | 100 |
| 3-4 | 80 |
| 4-5 | 60 |
| 5-6 | 40 |
| 6-7 | 20 |
If you’d like to discuss inheritance tax planning or review your current arrangements
