Wills & Estate Planning > Inheritance Tax Planning

We understand that inheritance tax laws can be complex. Our specialist lawyers have many years of experience assisting people in planning the future of their assets in the most tax efficient way. We will work with you to create a bespoke inheritance tax plan for you and your loved ones’ futures.

Please feel free to contact us if you have any questions about this process. 

Who pays inheritance tax?

FACT: Your estate will owe tax at 40% on anything above the £325,000 inheritance tax threshold when you die (or 36% if you leave at least 10% to a charity) unless you are exempt (see below).

Under current tax rules, everyone is allowed to leave an estate valued at up to £325,000 without their beneficiaries paying tax on it. The amount is set by the Government and is called the nil-rate band because it’s the amount you pay a ‘nil-rate’ of IHT on. Above that amount, anything you leave behind is subject to tax of 40% (or 36% if you leave at least 10% of your assets to a charity).

So, for example, if you leave behind assets worth £500,000, your estate pays nothing on the first £325,000, and 40% on the remaining £175,000 – a total of £70,000 in tax – if you’re not leaving anything to charity. In addition, there is now an additional allowance known as the “residence nil-rate band” of up to £175,000 when gifting residential property to a direct descendant (this includes children, step-children and adopted children). There is, however, a tapered withdrawal of the home allowance if the overall value of the estate exceeds £2 million. Please contact our office for more details.

Am I exempt from inheritance tax if I’m married?

When you die, any assets left to your spouse or registered civil partner, provided they’re UK-domiciled, are exempt from inheritance tax. On top of this, your partner’s inheritance tax allowance rises by the amount you didn’t leave to others, meaning together a couple can currently leave £650,000 tax-free.

In addition, there is now an additional allowance known as the “residence nil-rate band” of up to £175,000, when gifting property to a direct descendant and when certain conditions are met. The residence nil-rate band means that where the conditions are met, couples can effectively leave between them £1 million free of inheritance tax.

An example:-

Mr and Mrs Bloggs have assets worth £800,000 between them, the property value is £500,000. Let’s say Mr B dies first and leaves everything to his wife, Mrs B. As assets passing between a husband and wife are exempt from inheritance tax, no tax is payable on the first death. However, when Mrs B dies, she leaves the family home and other assets to her three children. The allowance is calculated as follows:- £325,000 allowance for Mrs B, £325,000 for Mr B making a total of £650,000. A further allowance (residence nil-rate band) is claimed as the family home is being gifted to the three children (£175,000 each for Mr and Mrs B) giving a total allowance of £1 million, so no tax is payable.

What if I’m not married?

While transfers of property and other assets between married couples or civil partners don’t attract inheritance tax, this isn’t the case for unmarried couples.

If you’re not married, but own assets jointly with another person, the situation gets complicated, especially where a residential property is involved. Your liability to pay inheritance tax will depend on whether you and your partner own the property as ‘joint tenants’ or ‘tenants in common’ and whether there’s a will.

For example, if you are joint tenants (you both own all the property), your partner has left you everything in the will and your partner’s assets, including the property, exceed the £325,000 inheritance tax threshold, you would have to pay inheritance tax on any assets in the estate above that. After your partner’s death, your property would then be owned by you in its entirety.

However, if your partner didn’t leave a will, his or her family may have a claim to any property in his/her estate which was not jointly owned along with you as a joint tenant.

There are different ways of reducing your inheritance tax liability. For more detailed advice and a quotation, please contact our office.