Inheritance Tax
Inheritance Tax is paid on anything you receive, whether that is property, money or assets from someone who has passed away.
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Inheritance Tax Threshold
Nil rate band: A single person (not married) has a £325,000 tax relief or £650,000 jointly if you are married or in a civil partnership.
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Residence nil rate band: If you own your own home, a further individual allowance of £175,000 is allowed if you give your home to your direct descendants, potentially increasing your inheritance allowance to £1 million for a married couple or civil partnership.
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40% Inheritance tax is charged on assets above these two key thresholds when a person dies.
Ways to avoid and reduce inheritance tax
There are legal opportunities to avoid and reduce your inheritance tax liability.
Gifts
You can gift £3,000 a year, plus unlimited amounts of up to £250, free from inheritance tax.
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Weddings gifts of up to £5,000 to a child, £2,500 to a grandchild or great-grandchild and £1,000 to anyone are exempt from inheritance tax.
Trusts
You can set up a trust, which is a way of passing on money or assets to children or grandchildren but allows you more control than simply handing over money or assets. However, the 7-year rule still applies.
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Trusts also are subject to 6% tax when setting up and in the future, plus they have 10-year anniversary charges to satisfy HMRC rules.
Life Insurance
Taking out life insurance can mean your loved one receives a lump sum straight after your death. If life insurance is set up correctly and put into Trust, your loved ones can receive the sum tax free.​
Pension pots
​From April 2027, inherited pension pots will form part of the estate and will be subject to inheritance tax if over the inheritance threshold.
Business Property and Agricultural Relief
From April 2026, if you owned:
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a business or interest in a trading business;
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shares in an unlisted company; or
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land or property for agricultural purposes
for at least 2 years prior to your death, the asset qualifies for Business Property Relief and/or Agricultural Property Relief and will attract no inheritance tax on the first £1 million. Assets of a qualifying Business Property and/or an Agricultural Property over £1 million will receive a further 50% relief, taxed at 20%.