The key aspects of IHT for UK residents
Tax-Free Threshold (Nil-Rate Band):
The first £325,000 of an estate is exempt from IHT.
Any value exceeding this threshold is taxed at 40%.
Residence Nil-Rate Band (RNRB):
When a primary residence is passed to direct descendants (e.g., children or grandchildren), an additional tax-free allowance of up to £175,000 applies.
Combined with the nil-rate band, this can increase the total tax-free threshold to £500,000.
The RNRB reduces for estates valued over £2 million.
Spousal Exemption:
Assets left to a spouse or civil partner are exempt from IHT.
Unused portions of the nil-rate band can be transferred to the surviving partner, potentially doubling the allowance for married couples or civil partners.
Charitable Donations:
Leaving 10% or more of the estate’s net value to charity reduces the IHT rate on the remaining taxable amount to 36%.
Recent Changes and Future Developments:
Pension Inheritance:
From April 2027, pensions will be included in IHT calculations.
Residency Rules Adjustment:
From April 2025, IHT rules will shift to consider a person’s tax residence rather than solely their domicile status.
Need Expert Advice?
Inheritance Tax laws are complex and subject to change. To protect your estate and ensure your loved ones benefit fully, contact us for personalised advice tailored to your circumstances.
How Can I reduce My Inheritance Tax Bill?
This is the biggest question we get asked when advising on estate planning for our clients. Every single persons financial situation is individual to them, but we have made a great list of ideas here for people to use. Hopefully this helps you keep as much money as possible within your family. Always feel free to reach out if you need professional help though.
1. Make Use of Tax-Free Allowances
Nil-Rate Band: Ensure your estate stays within the £325,000 tax-free threshold.
Residence Nil-Rate Band (RNRB): If passing your main residence to direct descendants, benefit from an additional allowance of up to £175,000.
2. Gift Assets During Your Lifetime
Annual Exemption: Gift up to £3,000 per tax year without triggering IHT. Any unused allowance can carry over one year.
Small Gifts: Give up to £250 to any number of individuals each year, free of IHT.
Wedding/Civil Partnership Gifts: Gift tax-free amounts, ranging from £1,000 to £5,000, depending on your relationship to the recipient.
Gifts Outside the 7-Year Rule: Gifts to individuals are free from IHT if you survive for seven years after making the gift.
3. Leave Money to Charity
Donations to registered charities are exempt from IHT.
If 10% or more of your estate is donated, the IHT rate on the remaining taxable estate is reduced from 40% to 36%.
4. Use Trusts to Protect Your Assets
Transfer assets into certain types of trusts to reduce their value within your estate.
Trusts allow you to retain some control over the assets while potentially reducing IHT liability.
5. Take Advantage of Business and Agricultural Reliefs
Business Relief: Certain business assets may qualify for up to 100% IHT relief.
Agricultural Relief: If your estate includes qualifying agricultural property, this may also be eligible for relief.
6. Life Insurance Policies
Take out a life insurance policy to cover the expected IHT bill.
Ensure the policy is written in trust so the payout doesn’t form part of your estate.
7. Plan for Pension Funds
Designate beneficiaries for your pension to avoid it forming part of your estate.
8. Spend or Give Wealth
Reduce the size of your taxable estate by spending or gifting assets.
Consider family support, education costs, or other financial contributions that can benefit loved ones.
Seek Professional Advice
IHT planning can be complex and may involve legal and financial implications. For tailored advice, consult with a financial planner or estate planning expert.
Contact today for personalized inheritance tax solutions.
