Inheritance tax planning (2024)

Inheritance tax FAQs

Tax rules can change and any benefits will depend on individual circ*mstances. This is not personal advice.

• Estate planning is a general term used to describe how you want your assets and affairs to be handled when you pass away. Key components of estate planning are creating an asset register, writing a will, naming a lasting power of attorney and planning how you’ll pass on your wealth tax efficiently.

  To get a well rounded plan, you can ask experts to help. A financial adviser can help you make the most of your tax allowances, an accountant can help you do the sums and a solicitor can help you with your will.

• Not everyone has to pay inheritance tax (IHT). Here are the basics.

  IHT is usually paid at 40% on the value of your estate (your property, money and possessions) over the £325,000 allowance (the normal nil rate band). There’s also an additional allowance of up to £175,000 if you pass on your family home to a direct descendant called the residence nil rate band. And, for any joint assets, you only include the value of your share.

  If you’re married or in a civil partnership you can combine your allowances and transfer assets between each other free of IHT. When one dies, there won't be any IHT liability on any assets inherited by the survivor, and you might be able to make use of the IHT allowances which were unused by your late spouse/partner.

  See whether you could be impacted by inheritance tax by using our inheritance tax calculator.

• The residence nil rate band is a separate tax threshold from the tax-free amount on your other assets. It only applies to your primary residence and it’s set at £175,000 per person. So if you have a partner who’s also on the deeds of your home, you have a combined allowance of £350,000.

  If you own more than one home, there’s no tax-free threshold on additional properties. For a home to qualify for the allowance it must have been your main residence at some point and be passed to a direct descendant. If you own more than one qualifying property your executors can chose which one to use. Additionally, if the value of your net estate exceeds a threshold of £2,000,000 the residence nil rate band will be reduced or even wiped out altogether.

• You might if the property you inherit increases in value after the person you inherit it from dies. If this is the case and you decide to sell an inherited property, you may pay capital gains tax.

  The current capital gains tax free allowance is £3,000 (2024/25 tax year).

• Gifting money before you die can reduce the inheritance tax your beneficiaries pay. But, if you die within 7 years of gifting your money, gifts which fall outside your nil rate band will be taxed on a sliding scale depending on how long you lived after making the gift. Use our helpful table to find out how much you could be taxed.

  Number of years survived	Reduction in tax	Effective tax rate
  0-3	0%	40%
  3-4	20%	32%
  4-5	40%	24%
  5-6	60%	16%
  6-7	80%	8%
  7+	100%	0%