WillsInheritance Tax FAQs

24 November 2023by Chris Rattigan-Smith

The autumn statement came and went earlier this week and despite many hints in the media that changes to inheritance tax were coming, it has been left untouched. Now would seem a good time to look at an overview of inheritance tax and deal with several frequently asked questions.

What is Inheritance Tax?

In simple terms, inheritance tax (or IHT) is a tax charged when wealth changes hands. It is mainly charged on death but may also be charged at points during a person’s lifetime and also on certain trusts.

Is Inheritance Tax charged on gifts to spouses and partners?

Any gifts made to a spouse or civil partner are exempt from inheritance tax. This however does not apply to gifts made to unmarried partners so inheritance tax may be charged.

Are there any tax-free thresholds?

Each person has a Nil Rate Band (NRB) available to them. Any assets up to this value will not be charged IHT. Assets above the NRB will be charged. The current value of the NRB is £325,000.

Since 6 April 2017, each person also has a Residential Nil Rate Band (RNRB) available to them. The exact rules on RNRB are complex, but in short the RNRB will be available where a person passes their share in their main residence to their children, other descendants or certain other qualifying beneficiaries on death. Stepchildren are included in this, but not the children of an unmarried partner. The value of RNRB is currently £175,000.

These together potentially mean that a single person can leave up to £500,000 on death with no inheritance tax charged.

Where a person does not fully use their NRB and RBRB, the unused allowances can be transferred to a surviving spouse or civil partner to be used on their death. This allows married couples and civil partners to potentially leave up to £1,000,000 inheritance tax free.

NRB and RNRB are frozen at their current values until at least April 2028.

Are there any other exemptions and reliefs?

 There are number of different exemptions and reliefs for inheritance tax that can be claimed. The following are some of the common examples of these.

  • Gifts to charities and qualifying political parties are free of inheritance tax.
  • Certain business and farming assets can qualify for either a 50% or 100% relief from inheritance tax.
  • Each person has an annual exemption of £3000 per year that can be gifted in any way that will not be considered for inheritance tax. An unused allowance can be rolled over to the next year once.
  • Small gifts totalling £250 per individual per year are exempt.

Can assets be given away in lifetime to avoid inheritance tax on death?

If a person makes a gift in lifetime to another person, there is no immediate inheritance tax payable. If the person making the gift then survives 7 years from the date of the gift, it will then be outside of the estate. However, if they die within 7 years of the gift, inheritance tax will be charged on the gift. These are known as the Potentially Exempt Transfer rules.

This also only applies if the person making the gift no longer benefits from the assets gifted. If they continue to benefit, anti-avoidance rules known as Gifts with Reservation of Benefit will apply and the assets gifted will be taxed as part of the estate on death. For example, if a person gifts a property but keeps living in the property or takes rent from the property, they have kept a benefit and the property will be taxed as part of their estate on death.




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Chris Rattigan-Smith