Inheritance Tax

Rates

The nil rate band for cumulative chargeable transfers in the last seven years is £325,000 (frozen from April 2009 to April 2018). If one of a married couple/civil partnership did not use the full band on death, the unused proportion increases the nil band of the other spouse/partner on the second death.

Gifts above that are charged at the following rates:

Chargeable legacies on death – 40%

Gifts within 7 years of death – 40%, with reductions if over 3 years before death

Lifetime chargeable gifts – 20% if the donee pays the tax, 25% if the donor pays

Payment

Inheritance Tax (IHT) on a deceased’s estate and on gifts within 7 years of death is generally payable at the end of six months after the month of death, but tax on the estate must be paid before probate is granted, and this may necessitate earlier settlement. Tax on some property (e.g. real estate) can be paid by instalments.

IHT onchargeable lifetime gifts is payable on the later of six months after the month of transfer or 30 April in the next tax year.

Major reliefs

Lifetime gifts between individuals are left out of account while the donor survives (‘potentially exempt transfers’). They are only charged if the donor dies within 7 years of the gift.

The following transfers are exempt from IHT:

the first £3,000 gifted in a tax year (unused limit may be carried forward for one year)
small gifts of up to £250 per recipient in a year
normal expenditure out of income
gifts between spouses/civil partners, unless the donor is domiciled in the UK and the recipient is not (then limited to £325,000)
gifts in consideration of marriage – £5,000 from a parent, £2,500 from a grandparent/party to the marriage, £1,000 others

Most business and agricultural property enjoys a 100% relief once it has been owned for two years. Some types of property are relieved only at 50%, and it is important to meet all the conditions.

Relief for gifts to charity

Gifts or legacies to charity are not charged to IHT. If 10% of the net taxable value of an individual’s death estate is left to charity, IHT on the rest is charged at only 36%.