Inheritance Tax & Estate Planning.

Trusts can be an effective estate planning tool, but they do not automatically reduce or eliminate IHT. The tax treatment depends on the type of trust and when assets are transferred into it. Gifts into most trusts are immediately chargeable transfers — IHT may be due at the time of the gift if the amount exceeds the available nil-rate band. Trusts are also subject to periodic charges every ten years and exit charges when assets leave the trust. Some trusts — such as those for disabled beneficiaries — attract more favourable treatment. Used appropriately, trusts can help manage how and when assets are distributed, provide for vulnerable beneficiaries, and form part of a broader IHT planning strategy. Professional advice is essential before using trusts for tax planning purposes.

Yes — transfers between spouses and civil partners who are both domiciled in the UK are entirely exempt from inheritance tax, regardless of the amount. This means the first spouse to die can leave their entire estate to the surviving spouse without any IHT being due. Any unused nil-rate band and residence nil-rate band from the first death can also be transferred to the surviving spouse's estate, effectively doubling the available threshold. However, the IHT liability is only deferred — it falls on the surviving spouse's estate when they die. Good estate planning considers both deaths, not just the first, to ensure the combined estate is structured as tax-efficiently as possible.

Yes — the October 2024 Budget announced several significant IHT changes. From April 2026, business property relief and agricultural property relief will be capped: the first £1 million of combined qualifying assets will continue to attract 100% relief, but assets above that threshold will only receive 50% relief. From April 2027, unused pension funds and death benefits will be brought within the scope of IHT for the first time — a major change for those who have used pensions as an estate planning vehicle. The nil-rate band freeze continues until at least 2030. These changes represent the most substantial reform of IHT in many years and make a review of existing estate plans urgent for anyone with business interests, agricultural land, or significant pension assets.

Agricultural property relief (APR) reduces the value of qualifying agricultural property by either 50% or 100% for IHT purposes, depending on the nature of the ownership and occupation. Land farmed by the owner typically attracts 100% relief; tenanted land may attract only 50%. The property must have been used for agricultural purposes for at least two years (if owner-occupied) or seven years (if tenanted) before death. Following the October 2024 Budget, APR is also being reformed from April 2026 in line with the BPR changes: combined APR and BPR relief will be capped at £1 million at 100%, with a 50% rate above that. These are the most significant changes to agricultural IHT reliefs in decades and require careful review of existing estate plans.

Business property relief (BPR) can reduce the value of qualifying business assets by either 50% or 100% for IHT purposes. Assets attracting 100% relief include shares in an unlisted trading company, a sole trade or partnership interest, and certain AIM-listed shares. Assets attracting 50% relief include shares in a quoted controlling interest and certain business property used by a partnership or company. The asset must generally have been owned for at least two years before death. Following the October 2024 Budget, BPR is being reformed from April 2026: the 100% relief will be capped at £1 million per person, with a 50% relief applying above that threshold. These changes significantly affect estate planning for business owners.

IHT is calculated on the net value of the estate — total assets minus debts and liabilities — at the date of death. The available nil-rate band and residence nil-rate band are deducted, and 40% is charged on the remainder. Any reliefs and exemptions reduce the taxable amount. IHT is paid by the estate, not the beneficiaries personally — the executors are responsible for calculating and paying it to HMRC before the grant of probate is issued. At least some IHT must be paid before probate can proceed, which can create a practical difficulty where the estate's main asset is property that cannot be sold until after probate. HMRC allows IHT on property to be paid in annual instalments over ten years.

Lifetime giving is one of the most effective ways to reduce an IHT liability, within the rules. Each person has an annual exemption of £3,000 that can be given away each year free of IHT, with unused allowance from the previous year carried forward once. Small gifts of up to £250 per recipient per year are also exempt. Gifts on marriage or civil partnership attract their own exemptions depending on your relationship to the couple. Regular gifts out of surplus income — not capital — can be exempt if they form part of a normal pattern of giving and do not affect your standard of living. Larger gifts are potentially exempt transfers (PETs) and become fully exempt if you survive seven years after making them.

Inheritance tax (IHT) is a tax on the estate — the property, money, and possessions — of someone who has died. It applies where the total value of the estate exceeds the available tax-free threshold, known as the nil-rate band. The standard rate of inheritance tax is 40%, charged on the value of the estate above the threshold. A reduced rate of 36% applies where at least 10% of the net estate is left to charity. IHT is paid by the estate before assets are distributed to beneficiaries — it is not a tax on the beneficiaries personally. Not all estates pay IHT: transfers between spouses and civil partners are generally exempt, and various reliefs and exemptions can reduce or eliminate the liability.

A will records what you want to happen to your assets after death — it is an essential document, but on its own it does not minimise the tax your estate may pay. Estate planning is a broader process: it looks at the overall value of your estate, the IHT that would be payable at current values, and what steps can be taken during your lifetime — and through your will — to reduce that liability and pass more to the people you choose. Estate planning may involve lifetime giving, the use of trusts, business or agricultural property relief, pension planning, and the structure of jointly held assets. A will is the foundation; estate planning builds on it.

The nil-rate band is the threshold below which no inheritance tax is charged. It is currently £325,000 per person and has been frozen at this level since 2009 — a freeze that has pulled many more estates into the IHT net as property values have risen. Any unused nil-rate band can be transferred to a surviving spouse or civil partner on death, potentially giving a combined threshold of £650,000. The nil-rate band is in addition to the residence nil-rate band where that applies. The freeze on the nil-rate band is currently set to continue until at least 2030, meaning more estates will become liable for IHT as asset values continue to increase.

The residence nil-rate band (RNRB) is an additional IHT-free allowance of up to £175,000 that applies where a residence is passed to direct descendants — children, grandchildren, or stepchildren. Combined with the standard nil-rate band, it gives a potential total threshold of £500,000 per person, or £1 million for a married couple or civil partners who transfer both allowances. The RNRB is tapered — it reduces by £1 for every £2 by which the net estate exceeds £2 million, disappearing entirely for estates over £2.35 million. It only applies where a residential property (or the proceeds of one sold during lifetime) is left to direct descendants. Estates without qualifying property or beneficiaries cannot use it.

The seven-year rule means that gifts made more than seven years before death are generally exempt from inheritance tax. Gifts made within seven years of death — known as potentially exempt transfers (PETs) — may be brought back into the estate for IHT purposes. The tax charge reduces on a sliding scale depending on how many years before death the gift was made: gifts made three to four years before death attract 80% of the full charge; four to five years 60%; five to six years 40%; and six to seven years 20%. Only gifts made within three years of death attract the full 40% rate. Gifts to most trusts follow different rules — they may be immediately chargeable rather than potentially exempt.

The main IHT exemptions and reliefs include: the spouse or civil partner exemption (transfers between UK-domiciled spouses are fully exempt); charitable giving (gifts to registered charities are exempt and can reduce the IHT rate to 36%); business property relief (up to 100% on qualifying business assets, subject to reforms from April 2026); agricultural property relief (up to 100% on qualifying agricultural land, subject to the same reforms); annual and small gift exemptions; the normal expenditure out of income exemption; and potentially exempt transfers that survive seven years. Each relief has specific conditions and some are being reformed — a professional review of your estate against current and forthcoming rules is the most reliable way to identify what is available to you.