Inheritance Tax

Inheritance Tax (IHT)

The government levies tax on the value of a person’s estate, if their estate is worth more than the Nil Rate Band. The IHT ‘Nil Rate Band’ (NRB) is currently £325,000 (and frozen at this level until April 2030) and many people are still getting caught in the trap of property inheritance tax as the threshold has not kept pace with the inflation of property prices, and so is affecting more and more people.

There is also an additional ‘main residence’ allowance (‘Residence Nil Rate Band’ (RPNRB)) which applies if a person’s home is left to their direct descendants on their death (direct descendants include children (including adopted, foster or stepchildren) and, grandchildren). This is set at £175,000 (and frozen until April 2030) and is added to the IHT threshold providing a total allowance of £500,000 for those eligible to use both allowances.

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When a relative dies and leaves an estate worth more than £325,000 or £500,000 if the ‘main residence’ allowance applies, families are required to pay tax on the amount in excess of the NRB (and RPNRB if applicable) within six months. After that, they are charged interest at a rate of 7% (2025/2026).

However, there are ways to lessen the burden of property IHT.

When you die, it is likely that you would wish to leave as much as possible for your loved ones. Unfortunately, this is often not as simple as you might expect. HM Revenue and Customs (HMRC) will apply 40% tax to the value of your estate over and above that of the NRB (and RNRB) that applies at the time of death.

As a valued client, you’ll have our ongoing support. We’ll update you on relevant tax news about dividends from investments, retirement income, ISAs, pensions, capital gains tax or inheritance tax.

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No IHT is applicable on ‘inter-spousal transfers’ (money/property/assets that is bequeathed by one spouse (or civil partner) to the other) and any percentage of nil rate band or residence nil rate band not used on first death can be transferred over to use on second death if eligible. This gives a couple available allowances (nil rate bands) of up to £650,000, which increases to £1,000,000 with the addition of the residence nil rate band detailed above, if eligible to use both allowances.

Your estate could include more than you originally realise. It is often easy to dismiss IHT as something that may not affect you as your property may not be over, or much over, the IHT threshold. However, with all your other assets, such as investments, life cover, bank accounts, pensions from 2027, as well as physical property such as cars, furniture and family heirlooms, many estates are considerably over the threshold without the individuals being aware of it.

For further information about Inheritance Tax please click here.