What is Inheritance Tax (IHT)?

Inheritance Tax is a tax on the estate of someone who has died, including property, money, and possessions. Understanding how it works can help reduce your liability and protect your assets.

What is the Nil Rate Band (NRB)?

The NRB is the basic IHT allowance of £325,000. You can leave assets up to this amount tax-free, either on death or as lifetime gifts. Assets above this threshold are taxed at 40%, unless exempt.

Example: An estate worth £500,000 would incur £70,000 in IHT (£500,000 – £325,000 × 40%).

How does the 7-Year Rule for lifetime gifts work?

• Gifts made within 7 years of death may be subject to IHT.
• Gifts made more than 7 years before death are usually exempt.
• Gifts to trusts are taxed at 20%, unless they are covered by the NRB or other applicable exemptions.

Example: A £425,000 gift to a trust would incur £20,000 in IHT (£425,000 – £325,000 × 20%).

Can the NRB be used more than once?

Yes. The NRB regenerates every 7 years, allowing periodic tax-free gifts or trust transfers. It is also transferable between spouses or civil partners, giving a combined allowance of £650,000.

What is the Residence Nil Rate Band (RNRB)?

The RNRB offers an additional £175,000 allowance if:

• The property was your residence.
• It is inherited by a lineal descendant (e.g., children, grandchildren).
• The gift is absolute—not contingent on age or conditions.

Deferred gifts are allowed, provided they pass to the child’s estate if the child dies before receiving them.

Are transfers between spouses or civil partners taxed?

No. Transfers between UK-domiciled spouses or civil partners are IHT-exempt. However, unmarried partners do not benefit from the transferable NRB.

What reliefs and reductions are available?

• Estates over £2 million lose RNRB at £0.50 per £1 above the threshold.
• Business Property Relief (BPR) may apply to AIM-listed trading companies held for 2+ years.
• Gifts with retained benefit (e.g., holiday homes still used by the donor) are treated as still owned and taxable.

What are the common IHT exemptions?

• Annual gifts of £3,000
• Unlimited gifts of £250 (not combinable with the £3,000 exemption)
• Regular gifts from surplus income (must be documented)
• Gifts to UK-registered charities (unlimited)

How does domicile affect IHT?

UK-domiciled individuals are taxed on their worldwide estate. Domicile is determined by your strongest connection—not just residency.

Can I pay IHT on property in instalments?

Yes. IHT on property can be paid in 10 annual instalments, plus interest.

Do I need legal advice for IHT planning?

Yes. Inheritance Tax planning can be complex. Our experienced solicitors can help you prepare your estate, make lifetime gifts, and navigate probate with tailored advice to minimise tax liability.