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About Inheritance Tax

In the UK there has been some form of inheritance tax as far back as 1694.

The taxing of estates has taken many forms over the years and with various names but in 1986 the name ‘inheritance tax’ (IHT) was first introduced and has remained ever since.

Find out who has to pay inheritance tax and how it’s calculated below.

Over the years there have been numerous inheritance tax changes…

Inheritance tax is calculated on the total deceased’s estate plus gifts made within 7/14 years (14 years applies to gifts made to trusts), with tax paid on amounts over the ‘nil rate band.’

On the taxable estate, the rate of tax is 40%.

Married couples and civil partners are allowed to pass on their assets tax-free and the surviving partner can, in addition, use any of their partner’s unused nil rate allowance.

There are further tax-free allowances concerning gifts made by the deceased in their lifetime.

Inheritance tax planning traffic light comparison

Whole of Life
Loan Trust
Discounted Gift Trust
Flexible Reversionary Trust
Business Property Relief
How each of the solutions fare in relation to these issues is indicated above using a traffic light system; green being the most favourable.

Please note: this graphic is subjective to change, not every expert will agree on the distribution of colours. There is much more to know before you act and that you should always seek financial advice first.

Who has to pay inheritance tax?..

If there is a will then the executor of the estate will arrange for any IHT to be paid.

If there is no will then the administrator of the estate will arrange for any IHT to be paid.

Any inheritance tax due on gifts made in the seven years prior to death must be paid by the recipients of the gifts.

Often a solicitor will be involved in dealing with a deceased’s estate and could also be an executor so they will deal with any inheritance tax payment to HMRC.

Inheritance tax has to be paid within 6 months of death, although extra time can be allowed, for instance if you are relying on the sale of property which is proving difficult to sell.

Any unpaid tax will incur interest charges.

Payments can be made to HMRC before all assets are sold which will ensure no interest charges are incurred, any subsequent overpayment will be refunded.

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Our company has the expertise to help clients navigate the complexities of inheritance tax, enabling them to make the most of their assets. If you’re confused about inheritance tax, or you’d like to learn more about getting your affairs in order, our specialist service is here to help.

How is inheritance tax calculated?..

On death the total value of all the deceased’s assets (property, money, investments & possessions) is calculated.

Each person has an inheritance tax-free allowance, also known as ‘nil rate band’ or ‘IHT allowance’

In the tax year 2024/25 the nil rate band is £325,000.

Married couples and civil partners can pass on assets to their spouses totally tax-free.

Any unused allowance following one partner’s death can be used by the surviving partner on their death.

The value of your estate over the nil rate band is usually liable to IHT at the standard inheritance tax rate of 40%.

Each person now benefits from a tax-free extra allowance of up to £175,000 to use against the value of their property, so long as it is passed to a direct descendant. This is called a Residential Nil Rate Band.

Gifts made in the 7 years prior to death could be liable to inheritance tax using a sliding scale depending how much of the seven year period has expired – this is known as the inheritance tax 7 years rule.

In addition there is a £3,000 annual gift allowance that is free of UK inheritance tax.

TAKE CARE – Some gifts into trust may result in an immediate and/or periodic change.

Gifts on the marriage of a child (£5,000 max), grandchild/great grandchild (£2,500 max) or any other relative (£1,000 max) are free from inheritance tax.

Regular gifts from surplus income or to help with living costs of an ex-spouse, elderly dependent or a child in full-time education don’t attract IHT and are a good way to pass money onto your children.

Gifts to charity and political parties (under certain conditions) are also exempt from UK inheritance tax.

IHT Planning is best dealt with holistically, taking into account all of your finances and goals

We have many years of experience in advising clients across the country who wish to protect their estate, and we provide a tailored service for each individual. Our company is well qualified to answer questions and enable you to organise your assets.

If you have any questions or queries call us on: 0800 093 4115


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