Inheritance Tax Planning

What is IHT?

If you plan to pass on assets or money after you die, your heirs could face a tax bill of up to 40% of your taxable estate.

The definition of your estate is the total value of your property, savings and other assets after your personal nil rate band, inheritance property tax allowance (if applicable), any debts and funeral expenses have been deducted.

You can reduce or avoid IHT in a number of ways. There's a tax-free allowance, and you can also give away a certain amount of your money during your lifetime, tax-free and without it counting towards your estate.

IHT thresholds and rates

Everyone at present has a tax-free inheritance tax allowance of £325,000 – known as the nil-rate band. The allowance has remained the same since 2010-11.

The standard inheritance tax rate is 40% of anything in your estate over the £325,000 threshold.

For example, if you leave behind an estate worth £500,000, the tax bill will be £70,000 (40% on £175,000 – the difference between £500,000 and £325,000).

However, if you're married or in a civil partnership, you may be able to leave more than this before paying tax.

Since April 2017, you've been able to pay less inheritance tax when leaving property to a family member. Currently this transferable allowance is £175,000 per person.

Married couples and civil partners are allowed to pass their possessions and assets to each other tax-free in most cases.

Gifts and other ways to avoid IHT

Some gifts are usually tax-free. These include gifts between spouses and civil partners, and gifts to charities. The use of trusts and specialist IHT mitigation products can also be advantageous in reducing IHT liabilities

Who pays the IHT bill?

Heirs must pay IHT by the end of the sixth month after you die.