Inheritance Tax (IHT) is a complex UK tax levied on estates exceeding certain thresholds upon death. Although only about 4% of estates were liable in 2023, rising asset values and frozen thresholds mean more families will be affected in the future. The standard Nil Rate Band (NRB) is £325,000 per individual, unchanged since 2009 and frozen until 2030. For married couples or civil partners, unused NRB can be transferred, potentially doubling the allowance to £650,000. An additional Residence NRB of up to £175,000 each applies when leaving a home to direct descendants, allowing some estates to benefit from a combined £1 million threshold.
IHT is charged at 40% on the value above available allowances, with exemptions for transfers to spouses, charities, and certain business or agricultural assets. Planning strategies include lifetime gifting (subject to the 7-year rule), use of trusts, charitable donations, and investing in qualifying assets. Downsizing relief and life assurance can also mitigate liabilities. From April 2026, Business and Agricultural Relief will be capped at £1.25 million per individual, and AIM shares will lose full exemption.
A robust Will is essential to ensure tax efficiency and family protection. Tools such as Deeds of Variation, Trusts, and pension nominations play a critical role in planning. Defined Contribution pension death benefits are currently IHT-free but will be included from April 2027, adding complexity.
Key Actions:
- Assess your estate and potential liability.
- Define goals for wealth transfer and tax mitigation.
- Implement strategies early to maximize effectiveness.
- Seek professional advice for complex cases involving trusts, business assets, or large estates.
My downloadable guide is an introduction and should not replace personalised legal and tax advice, which I can provide.
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