Inheritance Tax in the UK Explained
Inheritance Tax (IHT) can be complex, but with the right approach, you can reduce the impact on your estate. Our team provides specialist inheritance tax planning advice, helping you preserve wealth and pass it on efficiently to children or grandchildren.
With expertise in trusts for inheritance tax planning, property, pensions, and wills, our inheritance tax planning solicitors create tailored estate plans designed to secure your family’s future.
Lifetime Gifts and Allowances
Lifetime giving is one of the most effective ways to reduce your inheritance tax liability. If you survive seven years after making a gift, it’s usually exempt from inheritance tax.
- Outright gifts remove assets from part of your estate but reduce your control.
- Gifting into discretionary trusts protects wealth while offering flexibility.
- Certain small gifts are exempt each tax year, and regular gifts from income may also fall outside IHT.
- Life insurance can help cover any inheritance tax bill if you died within seven years of gifting.
Our inheritance tax planning advisors work with you to balance affordability with long-term security.
Trusts for Inheritance Tax Planning
Inheritance tax planning trusts are powerful tools for protecting assets and minimising exposure. A trust is a legal structure that holds assets for beneficiaries, providing flexibility and peace of mind.
- Discretionary trusts: efficient for IHT planning, allowing trustees to decide how funds are distributed.
- Interest in possession trusts: provide income for a spouse or civil partner while safeguarding capital.
- Asset protection trusts: shield property and investments from divorce, creditors, or care costs.
Our team guides you on the right type of trust, the process of setting up a trust, and the ongoing administration.
Pensions and Inheritance Tax Planning
Pensions often do not form part of your estate, making them valuable in IHT planning. Properly structured, pensions can pass tax-free to family members, even if you are married or in a civil partnership.
Regular reviews, aligned with your estate plans, ensure your pensions are integrated with trusts, wills, and other arrangements. Our inheritance tax planning solicitors provide clear guidance on using pensions to reduce long-term IHT exposure.
Frequently Asked Questions.
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1. How much is Inheritance Tax (IHT) in the UK?Inheritance Tax is payable on death at a rate of 40% on estates exceeding the available allowances. Currently, there is usually no inheritance tax where:
- The estate is under £325,000 (nil rate band)
- Assets are left to certain exempt beneficiaries (charity, spouses)
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2. How to avoid inheritance tax in the UK?Many strategies can mitigate inheritance tax, depending on your assets, family structure, and will structure. There's no one-size-fits-all approach, and some individuals may not have the appetite for this type of planning. Common strategies include:
- Gifting (individually or into trust structures)
- Using annual exemptions
- Gifting out of surplus income
- Family investment companies
- Leaving your estate to exempt beneficiaries
- Deeds of variation
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3. What is Inheritance Tax in the UK?Inheritance Tax (IHT) is the tax payable on death on the net estate (after liabilities have been deducted) of an individual. IHT is charged at a flat rate of 40% if the deceased's 'net estate' exceeds the threshold (nil-rate band), which is currently £325,000. This is due to remain the same until at least 2030. Interest begins to accrue after six months from the end of the month of death if not paid by then. Following the budget announcement in October 2024, it is now more important than ever to review your IHT position and future exposure, specifically in relation to pensions.
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4. What is the inheritance tax threshold?The inheritance tax threshold is currently £325,000 (nil rate band). There's an additional allowance called the residence nil rate band of £175,000 if you leave your main residence to a direct descendant.
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