Strategic Guidance to Protect Your Wealth Across Generations
What Is Inheritance Tax and When Does It Apply?
Inheritance Tax is a tax on the value of an individual’s estate when they pass away. This includes all property, cash, investments, possessions, and other assets owned at the date of death. In some cases, IHT can also apply to certain gifts made during a person’s lifetime if they fall within specific time windows.
For most estates, the standard IHT rate is 40% on the value above the available tax-free allowances. However, effective planning, using exemptions, reliefs, trusts, and other strategies, can significantly reduce or eliminate this liability.
Key Inheritance Tax Thresholds and Exemptions
Every estate benefits from a standard nil-rate band, currently set at £325,000. Any value above this is typically subject to IHT at 40%. However, a number of key exemptions and additional allowances may increase this tax-free threshold:
The Residence Nil-Rate Band (RNRB) allows an additional £175,000 when a main residence is passed to direct descendants (such as children or grandchildren). This means a married couple could pass on up to £1 million tax-free under the right circumstances.
Spouse or civil partner exemption: Assets left to a spouse or civil partner are exempt from IHT entirely. Moreover, any unused allowances can be transferred to the surviving partner, effectively doubling the IHT threshold for the family unit.
Charitable legacies: Leaving 10% or more of your estate to charity reduces the IHT rate on the rest of your taxable estate from 40% to 36%.
It's important to note that the RNRB begins to taper for estates valued over £2 million, meaning large estates may not benefit from the full additional allowance.
Recent and Upcoming Changes to IHT
Inheritance Tax is an area subject to regular reform and scrutiny, particularly where international tax treatment and pension wealth are concerned.
From April 2025, the UK is expected to reform the IHT framework to shift the focus from "domicile" to UK tax residency as a key trigger for liability. This will have significant implications for non-domiciled individuals and international estates.
From April 2027, pensions will also become subject to IHT in certain scenarios. Currently, pensions held outside the estate are typically exempt from IHT, but future rules may bring these into the scope, making early planning and beneficiary nomination even more critical.
How P10 Financial Supports Clients With IHT Planning
Inheritance Tax planning is not about avoiding your obligations, it’s about ensuring that your estate is structured fairly, efficiently, and in line with your wishes. We work with individuals, families, and business owners to preserve wealth, support intergenerational gifting, and reduce unnecessary tax exposure. Here is an example of when our team saved a family INHERITANCE TAX STRATEGY SHIELDS FAMILY LEGACY AND SAVES £800,000.