Inheritance Tax
Specialist Advice

The estate of a deceased person, comprising all property, possessions, and money, is subject to a tax known as Inheritance Tax (IHT). The standard rate of inheritance tax is 40%. Only the portion of your estate that is more than the current exemption threshold of £325,000 will be subject to taxation. A lower inheritance tax rate of 36% may apply if the decedent left at least 10% of their estate to charity.

There is usually no IHT to pay if

• The total amount of your estate is less than £325,000 (the “nil rate band”),
• You leave everything to your spouse or civil partner over a certain threshold, 
• You can either leave everything over the threshold to a tax-exempt organisation like a charity , 
• Giving your house to your children or grandchildren raises the threshold to £500,000.

Understanding the IHT implications is imperative if you own or have shares in a business. This is because there may be implications for succession planning and future business control. It is significant for family-owned businesses and an area of tax and accounting we specialise in.

Business Relief is provided when inheriting a business—100% for a business (or business interest) or unlisted corporation shares.  For relief, the deceased must have possessed the assets for two years.

Transfers of agricultural property (including farms, farm equipment, and buildings) that do not qualify for agricultural relief may be eligible for Business Relief. (if it’s eligible for Agricultural Relief, it’s not eligible for Business Relief). 

Agricultural Relief allows some agricultural assets to be inherited free of Inheritance Tax under specific conditions, either during the owner’s lifetime or as part of their will. This can occur either during the owner’s lifetime or after they pass away.

It is possible that you will be required to pay tax, including IHT, on the income you get from the pension pot of another individual after they have passed away.  State pensions have distinct rules (and the ability to pass these on is much more limited).

Typically, you would need to be nominated by the deceased. Generally speaking, pensions from a defined benefit pot are only paid to dependents, such as a spouse, civil partner, husband, wife, or civil partner (or a child under 23). If the rules of a pension system permit it, the benefit can be paid to another person; nevertheless, the recipient will be subject to taxes of up to 55% of the amount.

If you make a gift of less than £3,000 from your income to someone each tax year, you won’t have to pay Inheritance Tax on the money. Gifts made between spouses or civil partners are exempt from Inheritance Tax as well.

In addition to exempt gifts, you can give money as gifts during a wedding or civil ceremony, on someone’s birthday, at Christmas, or for any other typical occasion. Our tax experts can provide further information about the various situations in which a gift might be made free of Inheritance tax.