Inheritance tax is charged at 40% on the value of an estate above the available threshold. The nil-rate band is the first slice that passes tax free. A residence nil-rate band may add to it where a home passes to children, grandchildren or other direct descendants, though it tapers away on larger estates.
Anything passing to a surviving husband, wife or civil partner is exempt, and any unused threshold transfers to them. That is why a married couple can often pass considerably more than an individual before tax bites.
Gifts to charity are exempt, and where at least a tenth of the net estate goes to charity the rate on the rest falls from 40% to 36%.
Thresholds and rates correct as at [date]. Reviewed each Budget.
Most gifts to individuals fall out of your estate entirely if you survive seven years. Die within that period and they are brought back into account, with tapering relief on gifts above the threshold in the later years.
Alongside that sit several exemptions people underuse: an annual allowance, small gifts to any number of people, gifts on marriage, and — often the most valuable of all — regular gifts made out of surplus income that do not affect your standard of living. That last one requires proper records kept at the time, which is where most claims fail.
If you give something away but carry on enjoying it — most commonly signing over the house while continuing to live in it rent free — the gift is treated as never having left your estate. Schemes built around this idea are still marketed, and they still do not work.
Relief is available for qualifying trading businesses, shareholdings and farmland, at rates that can substantially reduce or remove the charge. The rules on what qualifies are detailed, and reforms have been announced that change the picture for larger holdings. If a business or a farm forms part of your estate, this is worth looking at now rather than later.
We tell you where your estate stands today, what the tax would be if nothing changed, and what lawful options exist. Some clients act on all of it, some on none, and some decide the tax is a price worth paying for keeping control.
We do not sell schemes and we do not promise outcomes. We give you an accurate picture and let you decide.
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