Inheritance Tax UK: Thresholds, Rates, and How to Plan
Inheritance Tax (IHT) is charged at 40% on estates worth more than the nil-rate band of £325,000. This threshold has been frozen since 2009 and is expected to remain until at least 2028.
An additional residence nil-rate band of £175,000 applies if you leave your home to direct descendants (children or grandchildren). For a married couple, the combined threshold can reach £1,000,000 because unused allowances transfer to the surviving spouse.
Common planning strategies include: gifting during your lifetime (gifts become IHT-free if you survive 7 years), using the £3,000 annual gift exemption, making regular gifts from surplus income (no limit), and leaving at least 10% of your estate to charity (which reduces the IHT rate from 40% to 36%). Trusts, pensions (which sit outside your estate), and business property relief are also valuable tools.
Frequently Asked Questions
Is there IHT between spouses?
No. Transfers between married couples and civil partners are exempt from IHT, regardless of the amount. Unused nil-rate band also transfers to the surviving partner.
How does the 7-year rule work?
Gifts you make become exempt from IHT if you survive 7 years after making them. If you die within 7 years, taper relief reduces the tax due on a sliding scale.
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