Inheritance tax planning.

Inheritance tax is charged on your estate at death, along with certain gifts made in the 7 years before. Your executors usually pay it before anything is passed on.

The standard rate is 40% on the part of the estate above your nil rate band of £325,000. If you leave your home, or a share of it, to children or grandchildren, the residence nil rate band of up to £175,000 is added.

The residence nil rate band is reduced by £1 for every £2 the estate is worth over £2 million. Larger estates can lose it entirely.

Anything you leave to a spouse or civil partner is normally exempt. Any nil rate band and residence nil rate band the first spouse does not use can pass to the survivor, so a married couple may pass on up to £1 million before inheritance tax applies. If at least 10% of the net estate goes to charity, the rate on the rest falls to 36%. For worked examples, see our guide to how much inheritance tax is.

Gifts are the simplest way to reduce inheritance tax, and some are exempt from the day you make them.

• Annual exemption: £3,000 of gifts each tax year. Any unused amount carries forward one year only.
• Small gifts: up to £250 per person per year, as long as no other exemption is used for that person.
• Wedding gifts: up to £5,000 from a parent, £2,500 from a grandparent and £1,000 from anyone else.
• Normal expenditure out of income: regular gifts from income, not capital, that leave you able to keep your usual standard of living. There is no cash limit, but your executors must be able to prove the pattern.

Larger gifts to individuals are potentially exempt transfers. If you survive 7 years after the gift, it falls out of your estate completely. If you do not survive the 7 years, the gift uses up your nil rate band first.

Where gifts made in those 7 years exceed the nil rate band, taper relief reduces the tax on the excess. The rate is 32% where the gift was made 3 to 4 years earlier, 24% for 4 to 5 years, 16% for 5 to 6 years and 8% for 6 to 7 years.

Gifting money to children is not taxed when you make the gift. Inheritance tax only becomes relevant if you do not survive 7 years after the gift and it is not covered by an exemption.

A gift only works if you genuinely give the asset up. If you keep using or benefiting from it, the gift with reservation rule below applies.

Gifts of shares or property can also bring a capital gains tax charge, and stamp duty land tax where a mortgage passes with a property. We check each tax before you act.

Your home is usually the largest asset in the estate. It is valued at market value at the date of death, and the residence nil rate band only applies if it passes to direct descendants: children, grandchildren and other lineal descendants, including step, adopted and foster children, and their spouses or civil partners. Nephews, nieces and siblings do not qualify.

Buy-to-let and holiday properties sit in the estate in full. They only attract the residence nil rate band if you lived in them at some point, and only one property can be chosen. Gifting them starts the 7-year clock but may bring a capital gains tax charge, and stamp duty land tax if the mortgage passes with the property. It pays to weigh these together before acting. Our property tax page covers the capital gains side.

If you give something away but keep using it or benefiting from it, HMRC treats it as still part of your estate for inheritance tax, however long ago the gift was made. The 7-year clock only starts once the benefit stops.

The common example is giving your home to your children and carrying on living there rent free. That gift does not reduce inheritance tax at all. The usual ways round it are:

• paying a full market rent for your continued use, reviewed regularly
• giving a share of the home to children who live there with you, provided you pay at least your share of the running costs

Each needs care and good records, so take advice before you act.

Pre-owned assets tax is a yearly income tax charge. It applies where an arrangement falls outside the gift with reservation rule but you still benefit from something you once owned, or helped to pay for, at any time after 17 March 1986. It covers:

• land and buildings, charged on the market rent
• chattels such as paintings, jewellery or a car, charged on their value at an interest rate set by HMRC
• cash, shares and other intangible assets in a trust you set up and can still benefit from, charged in the same way as chattels

There is no charge if your combined benefit from all such assets is £5,000 or less in a tax year. Above that, the whole amount is taxed, not just the excess.

Instead of paying the charge, you can elect to have the asset treated as part of your estate for inheritance tax. The election is made on form IHT500 by 31 January after the end of the first tax year in which the charge applies. HMRC accepts late elections only in limited cases, and your executors cannot make the election later on your behalf. Comparing the yearly income tax with the inheritance tax is worth doing before the deadline.

Yes. From 6 April 2027, most unused pension funds and pension death benefits will be included in the estate for inheritance tax. Until then, most pension pots pass outside the estate, which made them a common way to pass on wealth.

Personal representatives will be responsible for reporting and paying the tax. Death in service benefits from registered pension schemes are excluded, as are dependants' scheme pensions from defined benefit arrangements. Pension benefits passing to a spouse, civil partner or charity keep their existing exemptions.

For many people this changes the order in which assets should be used, and the role of gifts and life cover. We model the position before and after April 2027.

From 6 April 2026, 100% business relief and agricultural relief are limited to a £2.5 million allowance per person. Qualifying value above that gets 50% relief. A widow or widower can add their late partner's unused allowance to their own, so a couple can shelter up to £5 million.

Shares traded on markets that are not recognised as listed, such as AIM, receive 50% relief only. A gift of qualifying property on or after 30 October 2024 uses up part of the allowance if the giver does not survive seven years after the gift and passes away on or after 6 April 2026.

Plans made before these changes may no longer work as intended. See our succession planning page for more on passing a business on.

A will decides who gets what, and that decides which reliefs apply. Leaving the home to children uses the residence nil rate band. Leaving assets to a spouse defers the tax.

Life insurance written in trust can pay out outside your estate, giving your family funds to meet the bill without selling assets. We give the tax input; your solicitor drafts the will and your financial advisor arranges any policy.