Guide to Inheritance Tax (IHT)

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Navigate the complexities of Inheritance Tax (IHT) with this comprehensive guide. Discover key insights and expert advice on nil rate bands and gifting rules

Inheritance Tax (IHT) is one tax you don’t pay while you’re still around. But if you’re planning to pass on your worldly goods after you’re gone and you want to make sure your loved ones aren’t saddled with it, there are ways to reduce, or wipe out, any potential IHT bill.

What is Inheritance Tax?

It’s a tax on the ‘estate’ of someone who’s died. For tax purposes, your ‘estate’ means your property, money and possessions, and whether any Inheritance Tax (IHT) is due will depend on how much all of this is worth. In most cases, according to HMRC, the average estate isn’t liable for it as the latest figures show that IHT is incurred in just 4% of deaths – however, this may be down to careful financial planning.

Nil rate band

As a general rule, there’s usually no IHT to pay if the value of your estate falls under £325,000, which is known as the ‘nil rate band’.

There’s also none due if you leave everything over this amount to your spouse, civil partner, a charity or a community sports club. Otherwise, anything over £325,000 can incur IHT, which is typically charged at 40%.

Couples can transfer any unused ‘nil rate band’ to their surviving partner, effectively doubling their tax-free threshold to £650,000 when passing on assets after their own death.

Residence nil rate band

Passing on your family home can mean an extra tax-free allowance, providing you leave it to children, grandchildren, adopted, foster or stepchildren.
This extra allowance, introduced in 2017, is known as the ‘residence nil rate band’ (RNRB). It has gradually increased over the years, and is now worth an extra £175,000, on top of the £325,000 nil rate band, which means couples can pass on up to a total of £1 million without the risk of Inheritance Tax being incurred. 

Reducing Inheritance Tax

One way to reduce any potential IHT bill is by making a will. This gives you the chance to specify exactly how you want your money, property and possessions shared out – yet a 2023 report by the National Will Register found that less than half of UK adults have made a will.

If you die without making a will, your estate is divided up according to intestacy laws, which may not be the way you want and could even result in a potential IHT bill, as there are limits on how much your spouse can inherit.

If, for example, you’re married or in a civil partnership, and have children, your spouse can inherit up to £270,000, plus your personal possessions. Half of the remainder of your estate then goes to your spouse or civil partner and the other half is shared between your children. Different rules apply in Scotland (see the Scottish Government website for details).

IHT gifting rules

You can also protect against any potential IHT bill by giving away, or ‘gifting’, money or possessions while you’re still around.

It’s worth checking the rules before doing this as, while there’s nothing to stop you, say, giving a chunk of cash to each of your children to buy their first home, it could still count towards the value of your estate if you die within seven years of handing over the money. In that situation, it will be taxed on a sliding scale according to the time elapsed between the gift and your death.

However, there are also government rules that enable you to ‘gift’ money and possessions without risk of incurring any IHT liability further down the line.
Your ‘annual exemption’ enables you to gift up to £3,000 in total each tax year (from 6 April to 5 April), as well as making unlimited gifts of up to £250 per person. If unused, you can carry over your £3,000 annual exemption for one year, making a total of £6,000. You can also gift money at weddings without the fear of IHT. You can gift up to £5,000 for a child, £2,500 to a grandchild or great-grandchild, and £1,000 to anyone else. Any money left to charities or political parties is also free from IHT.


Trusts are traditionally a way of protecting your money, property or investments from Inheritance Tax. However, the rules are complicated and have changed over the years.

This means you may find there’s tax to pay when you put money into a trust, tax as you go along, and tax to pay when it’s taken out. There are also several different types of trust and for this reason, it’s best to seek specialist financial advice if you’re considering setting one up.

Settling IHT bills

When it comes to who’s responsible for settling any Inheritance Tax bill, it’s usually the executor of your will, as they’re the person (or people) who is (or are) legally responsible for sorting out your financial affairs.

And you don’t have unlimited time to pay up, as any Inheritance Tax bill should be settled within six months of the end of the month in which the person died.
You’ll find information on all these aspects on the government website

Inheritance Tax planning

Need help with your Inheritance Tax? A reputable financial adviser can help. If you’re a member of Boundless, you can book a free, no-obligation consultation, with a qualified financial expert from Quilter Financial Advisers, enabling you to discuss your options with a qualified financial expert. Quilter Financial Advisers is the preferred financial services partner of Boundless. To find out more, click here.

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Boundless members get access to year-round discounts including financial services, from insurance to will writing. If you're working or retired from the public sector or civil service and not yet a member, discover more about Boundless membership here.

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