{"id":5959,"date":"2025-03-19T11:23:39","date_gmt":"2025-03-19T11:23:39","guid":{"rendered":"https:\/\/new.contentdeployment.co.uk\/quilter\/?p=5959"},"modified":"2025-08-07T09:22:28","modified_gmt":"2025-08-07T08:22:28","slug":"an-introduction-to-inheritance-tax-getting-to-grips-with-the-basics","status":"publish","type":"post","link":"https:\/\/new.contentdeployment.co.uk\/quilter\/2025\/03\/19\/an-introduction-to-inheritance-tax-getting-to-grips-with-the-basics\/","title":{"rendered":"An introduction to inheritance tax"},"content":{"rendered":"<div class=\"hd-block hd-block-table\">\n<figure class=\"wp-block-table\"><table><tbody><tr><td>The current Inheritance Tax (IHT) threshold is \u00a3325,000 for individuals and \u00a3650,000 for couples, with additional residence relief for direct descendants<\/td><td>Unused pension funds will become subject to IHT starting 6 April 2027, impacting larger estates.<\/td><td>Gifting strategies, such as annual allowances, trusts and charitable donations, can significantly reduce IHT liabilities<\/td><\/tr><\/tbody><\/table><\/figure>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h2 class=\"has-x-large-font-size\">Contents<\/h2>\n<\/div>\n\n<div class=\"hd-block hd-block-list\">\n<ul><div class=\"hd-block hd-block-list-item\">\n<li><a href=\"#what-is-iht\">What is IHT?<\/a><\/li>\n<\/div>\n\n<div class=\"hd-block hd-block-list-item\">\n<li><a href=\"#who-pays-iht\">Who pays IHT?<\/a><\/li>\n<\/div>\n\n<div class=\"hd-block hd-block-list-item\">\n<li><a href=\"#what-is-the-current-inheritance-tax-threshold\">What is the current Inheritance Tax threshold?<\/a><\/li>\n<\/div>\n\n<div class=\"hd-block hd-block-list-item\">\n<li><a href=\"#how-does-the-main-residence-nil-rate-band-work\">How does the main residence nil-rate band work?<\/a><\/li>\n<\/div>\n\n<div class=\"hd-block hd-block-list-item\">\n<li><a href=\"#pensions-subject-to-iht-from-2027\">Pensions subject to IHT from 2027<\/a><\/li>\n<\/div>\n\n<div class=\"hd-block hd-block-list-item\">\n<li><a href=\"#what-is-the-7-year-rule-and-how-does-it-work\">What is the 7-year rule, and how does it work?<\/a><\/li>\n<\/div>\n\n<div class=\"hd-block hd-block-list-item\">\n<li><a href=\"#can-I-make-gifts-that-are-automatically-free-from-iht\">Can I make gifts that are automatically free from IHT?<\/a><\/li>\n<\/div>\n\n<div class=\"hd-block hd-block-list-item\">\n<li><a href=\"#how-are-assets-held-abroad-treated-for-iht\">How are assets held abroad treated for IHT?<\/a><\/li>\n<\/div>\n\n<div class=\"hd-block hd-block-list-item\">\n<li><a href=\"#top-tips\">Top Tips<\/a><\/li>\n<\/div><\/ul>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p><strong>More people than ever before are calculating the value of their estates and finding they have a greater liability to IHT than they\u2019d first thought. IHT can cost your estate thousands of pounds when you die; however, the good news is that expert planning can legitimately mitigate this tax, meaning you can pass on assets to your family as you\u2019d intended.<\/strong><\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h2 class=\"has-x-large-font-size\" id=\"what-is-iht\">What is IHT?<\/h2>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>IHT is a tax payable on money, savings or any other assets you pass on when you die, and potentially on some gifts you make during your lifetime. The amount payable is calculated after debts and funeral expenses have been deducted.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h2 class=\"has-x-large-font-size\" id=\"who-pays-iht\">Who pays IHT?<\/h2>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>When someone dies, the distribution of their estate will fall to their executors if they\u2019ve made a Will, or their administrators if they die intestate. If the estate is liable for IHT, it is usually payable at 40%. Your executor will be responsible for paying the tax, which can only come from the deceased person\u2019s estate with the prior agreement of HM Revenue &amp; Customs. Once the tax has been paid, then the Grant of Probate can be made, allowing the assets or their proceeds to be distributed to the beneficiaries.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h2 class=\"has-x-large-font-size\" id=\"what-is-the-current-Inheritance-Tax-threshold\">What is the current Inheritance Tax threshold?<\/h2>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>The current threshold is \u00a3325,000 for an individual and \u00a3650,000 for a married couple or civil partners. Any unused portion of the nil-rate band can be passed to the surviving spouse or civil partner on death.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>If one partner has already died, the allowance could be \u00a3650,000, but will depend on how much of the allowance was used on that partner\u2019s death.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>In response to the continuing rise in house prices, the government introduced an additional nil-rate band when a residence is passed on death to a direct descendant.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>The freeze on the \u00a3325,000 IHT threshold has been extended from 2028 to 2030.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h2 class=\"has-x-large-font-size\" id=\"how-does-the-main-residence-nil-rate-band-work\">How does the main residence nil-rate band work?<\/h2>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>This nil-rate band will apply if you want to pass your main residence to a direct descendant like a child or grandchild (including step, adopted or foster children). It\u2019s important to note that as only direct descendants can benefit, not everyone will be able to rely on it for IHT planning purposes.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>The nil-rate band for 2025-26 is \u00a3175,000. When added to the existing threshold of \u00a3325,000 this could potentially give rise to an overall allowance of \u00a3500,000 for those who are single or divorced, or \u00a31m for those who are married or in civil partnerships.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>However, it\u2019s important to be aware that larger estates will find that residence relief is tapered; it will reduce by \u00a31 for every \u00a32 of value for estates valued over \u00a32m.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h2 class=\"has-x-large-font-size\" id=\"pensions-subject-to-IHT-from-2027\">Pensions subject to IHT from 2027<\/h2>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>During the Autumn Budget 2024, the Chancellor announced that unused pension funds will be subject to IHT from 6 April 2027.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>When you die the value of your pensions will be added up with your other assets to calculate whether your estate will pay IHT. If the value of your estate is above \u00a3325,000 (or \u00a3500,000 if you\u2019re leaving your home to a direct descendant), any pension funds above that threshold will be liable for IHT at 40%. If you\u2019re passing on your pension to your spouse or civil partner, this can be inherited tax-free, as with any other assets left to a spouse or civil partner.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h2 class=\"has-x-large-font-size\" id=\"hat-is-the-7-year-rule-and-how-does-it-work\">What is the 7-year rule, and how does it work?<\/h2>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>To reduce the amount of IHT payable, many families consider giving their assets away during their lifetime. These are called \u2018potentially exempt transfers\u2019. The catch is that for these gifts not to be counted as part of your estate on your death, you must outlive the gift by 7 years. If you die within 7 years and the gifts are worth more than the nil-rate band, taper relief applies so that if you die say within 6 years, the tax will be less than if you were to die a year after making the gift.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>Gifts must be outright, and you can no longer benefit from them. So, if you were to gift your home, but continue to reside there without paying a commercial rent, HMRC would consider this to be a \u2018gift with reservation\u2019 and include the value as part of your estate.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h2 class=\"has-x-large-font-size\" id=\"can-I-make-gifts-that-are-automatically-free-from-IHT\">Can I make gifts that are automatically free from IHT?<\/h2>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>Yes, you can. Each financial year you can make gifts of up \u00a33,000 (in total, not per recipient) and if you don\u2019t use this in one tax year, you can carry over any leftover allowance to the next year. If you do this, you have to use up all your allowance in that tax year, you can\u2019t accumulate several years\u2019 worth of allowance and use it up in a single gift.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>Gifts of up to \u00a3250 per person per financial year to any number of people are exempt. Each parent of a bride or groom can give up to \u00a35,000; grandparents or other relatives can give up to \u00a32,500 and any well-wisher can give \u00a31,000. Gifts to registered charities and political parties are also exempt from IHT.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>There is another simple way of passing money to the next generation which allows for gifts to be made from surplus income. Conditions apply, and advice would be needed to ensure that the gifts are made in the right way.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h2 class=\"has-x-large-font-size\" id=\"how-are-assets-held-abroad-treated-for-IHT\">How are assets held abroad treated for IHT?<\/h2>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>The UK\u2019s tax system takes into consideration assets located in the UK and abroad, so IHT is levied on all your worldwide assets. This is a complex area of tax law and so advice is recommended.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h2 class=\"has-x-large-font-size\" id=\"top-tips\">Top Tips<\/h2>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h3 class=\"has-large-font-size\"><strong>Make a gift every year<\/strong><\/h3>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>Don\u2019t forget to maximise the use of your annual allowances; doing so can reduce the ultimate tax liability substantially.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h3 class=\"has-large-font-size\"><strong>Put things into trust<\/strong><\/h3>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>It\u2019s worth considering putting some of your cash, investments or property into a trust (which you, your spouse and none of your children aged under 18 can benefit from) as they will no longer form part of your estate for IHT purposes. So, for example, you could put money into a trust to pay for your grandchildren\u2019s education, or to provide support for a relative, to ensure that these are provided for after your death.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h3 class=\"has-large-font-size\"><strong>Leave something to charity<\/strong><\/h3>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>If the size of your estate means that IHT is likely to be payable, you can reduce the rate at which it is payable by leaving at least 10% of your net estate to charity. This would mean that the rate of tax payable on the balance of the estate could be reduced from 40% to 36%.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h3 class=\"has-large-font-size\"><strong>Take out life assurance<\/strong><\/h3>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>If you are concerned about the amount of IHT that may be payable on your estate, you could consider taking out a suitable life policy. Whilst it won\u2019t reduce the amount of IHT that will be due on your estate, the payment from the policy could make it easier for your beneficiaries to pay the bill. You would need to have the policy written under trust to ensure that it doesn\u2019t form part of your estate on your death. Payments of premiums are considered gifts for IHT unless they can be covered by one of the IHT exemptions.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h3 class=\"has-large-font-size\"><strong>Take professional advice<\/strong><\/h3>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>These days, many more estates are likely to be subject to IHT, so taking expert advice could save your beneficiaries substantial amounts of tax.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>There are simple steps you can take to reduce the amount of tax due. For instance, it\u2019s vital to have a valid Will in place; assets left to a surviving spouse or civil partner are free from IHT, but if you die without making a Will, not all of the estate will necessarily pass to the surviving spouse\/civil partner.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>One thing is certain, if you feel that your estate is likely to be subject to IHT you should obtain in-depth professional advice that looks at all aspects of your requirements, lifestyle and goals and develops a financial strategy that meets your needs. If you could use some practical, no-nonsense advice, then please do get in touch.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-image\">\n<figure class=\"wp-block-image size-full\"><img decoding=\"async\" loading=\"lazy\" width=\"602\" height=\"200\" src=\"https:\/\/cdn.contentdeployment.co.uk\/wp-content\/uploads\/sites\/3\/2025\/03\/19112234\/iht-guide-image.png\" alt=\"\" class=\"wp-image-5960\" srcset=\"https:\/\/cdn.contentdeployment.co.uk\/wp-content\/uploads\/sites\/3\/2025\/03\/19112234\/iht-guide-image.png 602w, https:\/\/cdn.contentdeployment.co.uk\/wp-content\/uploads\/sites\/3\/2025\/03\/19112234\/iht-guide-image-300x100.png 300w, https:\/\/cdn.contentdeployment.co.uk\/wp-content\/uploads\/sites\/3\/2025\/03\/19112234\/iht-guide-image-600x199.png 600w\" sizes=\"(max-width: 602px) 100vw, 602px\" \/><\/figure>\n<\/div>\n\n<div class=\"hd-block hd-block-heading\">\n<h2 class=\"has-large-font-size\"><strong>We\u2019re here to help<\/strong><\/h2>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p>We\u2019re only a phone call away, so if you have queries or would like to discuss any aspect of Inheritance Tax planning, please do get in touch.<\/p>\n<\/div>\n\n<div class=\"hd-block hd-block-spacer\">\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n<\/div>\n\n<div class=\"hd-block hd-block-paragraph\">\n<p><strong>It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission.<\/strong><\/p>\n<\/div>","protected":false},"excerpt":{"rendered":"<p>The current Inheritance Tax (IHT) threshold is \u00a3325,000 for individuals and \u00a3650,000 for couples, with additional residence relief for direct descendants Unused pension funds will become subject to IHT starting 6 April 2027, impacting larger estates. Gifting strategies, such as annual allowances, trusts and charitable donations, can significantly reduce IHT liabilities Contents More people than [&hellip;]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[32],"tags":[86],"hd_content_source":[],"_links":{"self":[{"href":"https:\/\/new.contentdeployment.co.uk\/quilter\/wp-json\/wp\/v2\/posts\/5959"}],"collection":[{"href":"https:\/\/new.contentdeployment.co.uk\/quilter\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/new.contentdeployment.co.uk\/quilter\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/new.contentdeployment.co.uk\/quilter\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/new.contentdeployment.co.uk\/quilter\/wp-json\/wp\/v2\/comments?post=5959"}],"version-history":[{"count":6,"href":"https:\/\/new.contentdeployment.co.uk\/quilter\/wp-json\/wp\/v2\/posts\/5959\/revisions"}],"predecessor-version":[{"id":6874,"href":"https:\/\/new.contentdeployment.co.uk\/quilter\/wp-json\/wp\/v2\/posts\/5959\/revisions\/6874"}],"wp:attachment":[{"href":"https:\/\/new.contentdeployment.co.uk\/quilter\/wp-json\/wp\/v2\/media?parent=5959"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/new.contentdeployment.co.uk\/quilter\/wp-json\/wp\/v2\/categories?post=5959"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/new.contentdeployment.co.uk\/quilter\/wp-json\/wp\/v2\/tags?post=5959"},{"taxonomy":"hd_content_source","embeddable":true,"href":"https:\/\/new.contentdeployment.co.uk\/quilter\/wp-json\/wp\/v2\/hd_content_source?post=5959"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}