Inheritance Tax
The UK government announced significant changes to the Inheritance Tax (IHT) regime, which came into effect on 6 April 2025. Inheritance Tax is a tax on the estate (the property, money, and possessions) of someone who has died. The standard Inheritance Tax rate is now 40% which has to be paid in the event of your death if your estate is above the £325,000 threshold. It is only charged on the part of your estate that is above the threshold.
Will my estate have to pay Inheritance Tax on my death?
You may be concerned about the prospect of your family having to pay a large inheritance tax bill when you pass away, and you may not be aware of certain exemptions and reliefs that may be available to you. If the value of your estate is below the £325,000 threshold, then there will be no Inheritance Tax to pay. If you leave everything above the £325,000 threshold to your spouse, civil partner, a charity, or a community amateur sports club, then you normally will not have to pay it either.
Smart Estate Planning
While it is true that Inheritance tax can take 40% of your estate above the £325,000 threshold, with smart estate planning, you can reduce it. For example, if you give away your home to your children (including adopted, foster, or stepchildren) or grandchildren, your threshold can increase to £500,000. If you are married or in a civil partnership and your estate is worth less than your threshold, any unused threshold can be added to your partner’s threshold when you die. You can give small gifts away to your family or friends up to £3,000 per year tax-free as long as you survive 7 years after giving the gift.You can use Life Insurance and put it in a trust to cover your tax bills on your death. You can leave gifts to charity, which will reduce the Inheritance Tax from 40% to 36%. You can set up trusts to keep some control while you reduce the value of your estate.
What counts as a gift?
Gifts you give in your lifetime can include money, household and personal goods such as jewellery, furniture or antiques, houses, land or buildings, stocks and shares listed on the London Stock Exchange, and unlisted shares that you held for less than two years before your death.
A gift can also include any money you lose when you sell something for less than it is worth. For example, if you sell your house to your child for less than its market value, the difference in value counts as a gift.
Anything you leave in your Will does not count as a gift but will count as part of your estate. Your estate includes all your money, property, and possessions left when you die. The value of your estate will be used to work out if Inheritance Tax needs to be paid.
Reliefs and exemptions
Some gifts that you give while you are alive may be taxed after your death. Depending on when you gave the gift, ‘taper relief’ might mean the Inheritance Tax charged on the gift is less than 40%.
There are other reliefs, such as Business Relief, which allows some assets to be passed on free of Inheritance Tax or with a reduced bill.
If your estate contains a farm or woodland, contact the Inheritance Tax helpline about Agricultural Relief.
Rules on giving gifts
Inheritance Tax may have to be paid after your death on some gifts that you have given. For example, gifts that were given less than seven years before you die may be taxed depending on who you gave the gift to and their relationship to you, the value of the gift, and when it was given.
Contact us for professional advice about your estate planning to give you peace of mind regarding your affairs on 01492 596596/874774.