inheritance tax explained

Inheritance tax is a tax on everything you own - your net assets - which is payable when you die.

While you may think this wouldn’t apply to you, your assets could end up being more extensive than you think. They could include the following:
• Your home or any other property you own
• Your investments
• Any insurance policies you have which are not written in trust
• Items such as your home contents, antiques and other collectables, cars, furniture and valuables like jewellery
• Gifts you’ve made during the last seven years
• Assets in trust from which you still benefit

Tax Planning

inheritance tax threshold

Inheritance tax is currently charged at 40% on your estate that is above the nil rate band (£325,000) and, if applicable, the residence nil rate band (£175,000).

The residence nil rate band will only be available if your property is left to direct descendants (such as children and/or grandchildren). It remains available even if you have downsized your property in later years. The residence nil rate band does reduce by £1 for every £2 your estate exceeds £2,000,000.

In the UK, inheritance tax applies to estates worth more than the current tax threshold.

£325,000

Nil Rate Band

£175,000

Residence Nil Rate Band (if applicable)

40% Tax

On assets above this threshold.

Ask us about Inheritance Tax Planning

Tax Planning

inheritance tax example

Here's an example of how inheritance tax could work if you had an estate worth £600,000 and qualified for the Residence Nil Rate Band.

£600,000

Estate Value

£325,000

Nil Rate Band

£175,000

Residence Nil Rate Band

£40,000

Inheritance Tax Liability

With the inheritance tax threshold being £325,000, anything in your estate which is above that amount would be liable for inheritance tax.

If you are leaving your main residence to a direct descendant, you will also be eligible for the Residence Nil Rate Band, which is an additional £175,000.

This means that if your estate was valued at £600,000, you would have an excess of £100,000 which would be liable.

With the current inheritance tax rate being charged at 40%, this means your beneficiaries would have to pay 40% of £100,000, meaning your estate would have to pay £40,000 in inheritance tax.

Tax Planning

inheritance tax relief & exemptions

There are some exemptions and reliefs available that can reduce the amount of inheritance tax that is due. For example, spouses and civil partners are usually exempt from IHT, and there are reliefs available for certain assets, such as business property and agricultural land.

It is important to note that IHT is a complex area of taxation, and we would always recommend speaking to a financial planner when reviewing your estate to make sure that your estate is structured in the most tax-efficient way possible. There are various strategies and planning techniques that can be used to reduce the impact of IHT, such as making use of annual gift exemptions, setting up trusts and making charitable donations.

If you're worried you may have an inheritance tax problem and would like advice, get in touch with one of our expert financial planners. We're more than happy to have an initial discussion with you at our expense to see if we can help you.

Ask us about Inheritance Tax Planning

The Financial Conduct Authority does not regulate estate planning, tax advice, wills or trusts.

inheritance tax planning

inheritance tax explained

inheritance tax threshold

inheritance tax example

inheritance tax relief & exemptions