These days, you don’t have to be hugely wealthy to be affected by Inheritance tax (IHT), due largely to the continued rise in house prices. More people than ever before are calculating the value of their estates and finding they have a greater liability to IHT than they’d first thought.

What is Inheritance Tax Planning?

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Inheritance tax is a form of taxation placed on your estate when you die. The standard inheritance tax rate is 40%, placed on the value of your estate in excess of the nil-rate-band of £325,000. There’s normally no Inheritance Tax to pay if either:

  • The value of your estate is within the £325,000 nil-rate-band.
  • You pass everything in excess of the nil-rate-band to your spouse, civil partner, a charity or a community amateur sports club.

Passing on your home

You can pass your home to your husband, wife or civil partner when you die with no inheritance tax applied. If you leave your primary residence to someone other than your legal partner, the value will count towards your estate.

If you pass your main residence to a direct descendant, i.e. your children/grandchildren, your total nil-rate-band will increase to £500,000 in tax year 2020/21. A tapered reduction will be applied to the residency nil-rate-band for estates with a net value over £2 million.


HMRC don’t allow you to give all of your assets away at the last minute in order to escape inheritance tax. Gifts you make, stay within your estate for a certain period of time depending on the way you gift.

There are several gift allowances that can be used to mitigate inheritance tax each year. Certain gifts become exempt from inheritance tax instantly, some result in an immediate inheritance tax charge and others become liable for less inheritance tax over a period of 7 years.

Gifts must be outright, and you can no longer benefit from them. So, if you were to gift your home, but continue to reside there without paying a commercial rent, HMRC would consider this to be a ‘gift with reservation’ and include the value as part of your estate.


Trusts can be used to mitigate tax whilst still retaining a level of control over the assets. The level of control is dependent on the type of trust used.

How are assets held abroad treated for IHT?

The UK’s tax system takes into consideration assets located in the UK and abroad, so IHT is levied on all your worldwide assets. This is a complex area of tax law and so inheritance tax planning advice is recommended.

Tips to mitigate your Inheritance Tax liability

  • Take Financial Advice
  • Use your Gift Allowances
  • Utilise Trusts
  • Donate to Charity
  • Take out a Life Insurance policy

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