Inheritance Tax (IHT) can significantly impact the wealth you pass on to your loved ones. This guide breaks down the current rules, thresholds and practical planning opportunities, helping you make informed decisions and reduce potential IHT bills.
Inheritance Tax (IHT) is often seen as complicated and daunting, especially with so much conflicting information in the media. In reality, with a clear understanding of the rules and some forward planning, it’s possible to manage your exposure and ensure more of your wealth goes to the people and causes you care about.
This guide is designed to give you an accessible overview of how IHT works today — including thresholds, allowances and strategies you may want to consider.
The Nil-Rate Band is the amount you can pass on without paying any Inheritance Tax.
The current threshold is £325,000 per individual, meaning no IHT is due on the first £325,000 of your estate.
Married couples and civil partners can combine their allowances, potentially passing on £650,000 tax-free, depending on circumstances.
Introduced to reduce IHT for families passing on a main residence.
If your home is left to direct descendants (children, stepchildren, grandchildren), you may qualify for an additional Residence Nil-Rate Band currently up to £175,000.
When combined with the standard Nil-Rate Band, a couple may pass on up to £1 million tax-free, subject to eligibility.
For estates valued above £2 million, the Residence Nil-Rate Band begins to taper.
For every £2 your estate exceeds the £2 million threshold, £1 of the RNRB is lost.
This can significantly affect high-value estates, making careful planning essential to preserve the allowance.
Any part of your estate above the available allowances is typically taxed at 40%.
In some circumstances, this can be reduced to 36% if at least 10% of the estate is left to charity.
You can gift up to £3,000 per tax year without it being added to your estate for IHT purposes.
You can also use small gift allowances and wedding gift allowances, making tax-efficient gifting a simple and effective tool.
Gifts beyond your annual allowances may fall under PET rules.
If you survive seven years after making the gift, it becomes fully exempt from IHT. If you pass away within seven years, taper relief may reduce the tax due.
Trusts allow you to move assets out of your estate while maintaining some control over how they’re used.
They can be helpful for:
Different types of trusts have different IHT implications, so professional guidance is essential.
Most pensions sit outside your estate, meaning they are usually not subject to IHT. This makes pensions one of the most powerful and tax-efficient tools for passing on wealth.
Beneficiaries can often inherit pension funds flexibly and tax-efficiently depending on your age at death.
A life insurance policy written in trust can help cover IHT liabilities, ensuring your beneficiaries receive the full value of your estate.
This can be especially useful for estates with property or illiquid assets.
Inheritance Tax rules are complex and often overlap with other areas of your finances, which can make it difficult to navigate alone. Mistakes can be expensive, and without clear guidance it’s easy to overlook important reliefs, allowances, or planning opportunities that could significantly reduce your estate’s future tax liability.
Working with a professional gives you tailored advice based on your goals, family circumstances and long-term intentions. With expert support, you can put a clear, compliant and effective plan in place — giving you confidence that your wealth is protected and your legacy is structured exactly as you intend.
If reading this guide has raised questions about your own estate or you’d like personalised advice on reducing your inheritance tax liability, our team is here to help. We can walk you through the options, explain how the rules apply to your circumstances and help you put a clear, confident plan in place.
