Reduce tax burden for your loved ones

Inheritance Tax Planning (IHT)

What is Inheritance Tax (IHT)?

Inheritance Tax (IHT) is the tax on the estate of someone who has passed away, including all property, possessions, and cash.  

Standard Inheritance Tax rate is currently 40% and is only charged on the part of your estate that is above the tax-free threshold (which currently sits at £325,000).  

There is normally no tax to pay if your estate has a value less than the £325,000 threshold (nil rate band), or you leave everything above the threshold to your spouse or civil partner, or an exempt beneficiary (like a charity). If you give away your home to your children or grandchildren, your tax-free threshold increases to £500,000. 

What are the benefits?

Being tax efficient benefits the amount that you can pass on by reducing estate depletion. And, in doing so, it reduces the administrative stress experienced by your loved ones when they inherit.  

Grandfather with 2 grandchildren

What are the potential risks?

As with other taxations, IHT rules can be changed by the UK government. 

Our financial planners are kept up to date with the most recent and relevant government legislation regarding IHT and other forms of taxation.

It is important that you discuss risks with a Certified Financial Planner.

How do we plan for Inheritance Tax?

A good financial plan will help you balance the money you need to look after yourself with the desire to help your family. To do this, we advise you on ways to manage and reduce Inheritance Tax.  

There are several things we may advise, including (but not limited to), making gifts, setting up trusts, taking out a life insurance policy to cover the tax bill, charitable giving while you’re still alive and in your will, and using tax-efficient investments to benefit from Business Relief. 

If your will passes all your assets to your partner (including your registered civil partner), there will normally be no Inheritance Tax to pay, and your nil-rate band won’t be used at all – meaning that both of your nil-rate bands can be combined for the surviving partner.  

It is always up to the legal personnel of the second spouse or civil partner to claim the transfer of the unused nil-rate band when the other dies. This will significantly reduce the inheritance tax burden passed onto your family and friends.  

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Questions we get asked a lot

The nil-rate band is the value of your estate that you will not be taxed on. This currently stands at a threshold of £325,000. 

The government also introduced a residence nil-rate band. This applies when you give away the home you lived in before you died to your children (including foster, adopted, and stepchildren) or grandchildren. This is a band of up to £175,000.  

So, when the residence nil-rate band applies, your children or grandchildren won’t have to pay IHT on the first £500,000 (this is the nil-rate band and the residence nil-rate band combined) if they sold the property. 

The nil-rate band is the threshold for charging IHT. In other words, it is the amount you can accumulate without incurring inheritance tax.  

The threshold is currently £325,000. You will therefore be charged IHT of 40% on any value over that amount. 


If you are married or in a civil partnership, you can combine both nil-rate bands, meaning that the first £1,000,000 of your assets (including property) are Inheritance Tax free.  

The standard Inheritance Tax rate is currently 40% and is only charged on the part of your estate that is above the tax-free threshold (which currently sits at £325,000). 

If you have made a will, IHT is usually arranged to be paid via a Direct Payment Scheme by your chosen executor.  

If you do not have a will, the administrator of the estate will pay.  

Inheritance tax normally needs to be paid before the probate can be issued.  

Though, HMRC may accept staged payments where a property is concerned (until the property is sold). 

There are other considerations to be made depending on your circumstances. Speak to a Financial Planner to get a better view of your situation.  

The IHT threshold is known as the nil rate band. For the financial year 2023/24, the basic threshold is £325,000. After this, the tax rate is usually 40% on the ensuing amount.  

Below this threshold, you pay no tax.  

This refers to the nil rate band. For the financial year 2023/24, this band is £325,000.  

Tax paid on gifts differs depending on when they were made.  

If you make a gift 3 years before your death, you will be taxed at 40%.  

Any gifts made 3 to 7 years before your death are taxed on a sliding scale called ‘taper relief’.  

Any gift given before this 7-year period (e.g., gifts made 8 years prior to your death) are completely tax free. 

There are a range of trusts which can be used to reduce IHT and help with your succession planning. 

Generally, a 20% tax charge is due when setting up any trust where the assets exceed the current nil-rate tax band.  

Exceptions may apply and charges are heavily determined by the type of trusts you set up. 

There are several ways you can reduce the amount of Inheritance Tax due. It is important that you speak with a Chartered Financial Planner to assess which options are the best for you and your personal circumstances.  

Some of the ways we may reduce IHT include (but are not limited to): 

  • Writing a will.  
  • Using the nil-rate threshold. 
  • Giving assets away via donation or gifting, for example.  
  • Putting assets into trust.  
  • Setting up life insurance.  

When you inherit property, you have three options: 

  • Sell it: the property will need to go through probate and then be sold, meaning you will have solicitor and estate agent fees.  
  • Rent it out: you will pay income tax on the rental income at your marginal rate. 
  • Live in it: you will not pay tax, though the estate needs to be settled first, so IHT may have already been paid if the value of the property is above the nil rate threshold. 
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