UK Inheritance Tax Facts & Questions

Inheritance Tax is paid from the estate itself, and it is the responsibility of the executor to settle the bill with HMRC. It must be paid by the end of the sixth month after the date of death to avoid interest charges, and in most cases it must be paid before probate is granted. This can create real practical difficulties, as the estate's assets may not yet be accessible. Planning ahead, for example through a life insurance policy written in trust, can help ensure the funds are available when they are needed.

Giving away your home can reduce your IHT liability, but the rules are specific. If you move out and survive for seven years, the property will generally fall outside your estate. If you continue to live in the property after giving it away without paying a market rate of rent to the new owner, it will be treated as a gift with reservation and remain part of your taxable estate regardless of how much time passes. Taking proper advice before making this kind of decision is important, as the consequences of getting it wrong can be significant.

Gifts made during your lifetime are potentially exempt from IHT, but only if you survive for seven years after making them. If you die within that period, the gift may still be counted as part of your estate and taxed accordingly, though a sliding scale of relief applies for gifts made between three and seven years before death. This means that the earlier you begin gifting, the greater the potential benefit, and the more of your estate can be passed on free of tax.

Everyone has a nil rate band of £325,000, the amount you can pass on free of IHT. If you own a home and leave it to your children or grandchildren, an additional residence nil rate band of up to £175,000 applies, bringing the total to £500,000 per person. Married couples and civil partners can combine their allowances, potentially shielding up to £1 million from IHT. You can also gift up to £3,000 per tax year free of IHT, and this can be carried forward one year if unused. Gifts to registered charities and political parties are exempt entirely.

Assets left to a spouse or UK-resident civil partner on death are fully exempt from Inheritance Tax, regardless of value. Donations to registered charities are also exempt, and leaving 10% or more of the net estate to charity can reduce the rate of IHT on the remainder from 40% to 36%. A limited exemption also exists for members of the armed forces, emergency services and humanitarian aid workers who die as a result of active service.

No. Assets passed to a spouse or UK-resident civil partner on death are fully exempt from Inheritance Tax, regardless of the value involved. Any unused nil rate band from the first partner's estate can also be transferred to the survivor, potentially doubling the threshold available on the second death.