Inheritance Tax – Could your estate be exposed?

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Many more ordinary people are becoming liable to Inheritance Tax (IHT) who may not have before. In this blog we’ll be looking at what IHT is, why the rise is occurring and how we can help you mitigate your IHT exposure.


IHT is a tax that is charged on the value of a person’s estate on death and on certain lifetime gifts.

An individual’s estate consists of all property, possessions, and cash they owned immediately before death, together with anything acquired as a result of death, (such as the proceeds of a life assurance policy or pension fund death benefits), plus any lifetime transfers made in the 7 years prior to death which are deemed to still form part of the estate.

The current rate of IHT on death is 40%. However, all individuals are entitled to a tax-free threshold which is offset against the value of the estate. If the value of your estate is in excess of the NRB, the amount above may be subject to IHT at 40%. The NRB is currently £325,000.

If your estate includes your home, you may also qualify for the residence nil rate band (RNRB) which is currently £175,000. The RNRB is available provided your home is left to your children or other direct descendants (i.e. grandchildren and great grandchildren etc.). As such, together with the NRB, this can give you a total tax-free threshold of up to £500,000 (or £1 million for spouses and civil partners), before IHT is charged at 40%.

Why are IHT receipts increasing?

During the period from April 2022 to February 2023, HMRC reached a record high taking in £7.1 billion revenue from IHT. This is £1 billion more than the same period the previous year.

IHT receipts have continued to rise year on year since 2002/03 with the exception of 2008 to 2010 due to the recession and 2020/21 due to the Covid-19 pandemic. According to HMRC’s data, it is clear to see the increasing trend across the last 20-year period and it looks like this trend is likely to continue at the cost of the taxpayer.

During the 2022 Autumn Statement, it was announced that the NRB will be frozen even further until April 2028. The NRB currently stands at £325,000 which was first introduced at this level from 5th April 2009 – meaning the rate has remained unchanged for almost 20 years!

The RNRB was introduced from April 2017 to reduce the amount of IHT payable when an individual passes on their home. However, the RNRB has remained frozen at £175,000 since 2020/21 and similarly, to the NRB, it is also set to remain frozen until April 2028.

With inflation and the ever-increasing UK property values against the frozen IHT tax free thresholds, many more ordinary people are becoming liable to IHT who may not have before. Many individuals who previously thought their estate would be covered by their tax-free allowances could see part of their estate subject to IHT at 40%. At one time IHT was perhaps a tax considered for the “rich”. However, it will come as no surprise that the number of additional estates being brought in to IHT is expected to continue to rise.

Can we help mitigate your IHT exposure?

With careful planning, there are ways in which you can reduce your exposure to IHT. Before undertaking such planning, we recommend advice is sought from one of our IHT experts. However, a brief summary of some of the IHT planning options available are outlined below:

Will Planning

Ensuring you have a valid and up to date Will becomes more important as we get older and start a family. Ordinarily, for married couples most Wills leave their entire estate to the surviving spouse on death of the first spouse but this may not be the most tax efficient route. Therefore, advice should be sought to ensure your will does what you want it to, and in the most tax efficient manner.

Lifetime Gifts into Trust

Value can be removed from your estate by gifting assets or cash into Trust. Lifetime gifts into Trust are chargeable transfers for IHT purposes and may be subject to lifetime IHT at 20% if in excess of the NRB and may be deemed part of your estate if not survived by 7 years from the date of gift.

There are many benefits of using a Trust rather than outright gifts as you can retain an element of control over the Trust’s funds and assets. However, planning and advice should be sought to ensure a Trust is created in the most tax efficient manner while meeting your requirements.

Outright Gifts

Outright gifts to family members or other individuals is also an effective way of reducing the value of your estate. However, these gifts may also be deemed to still form part of your estate if they are not survived by 7 years from the date of gift.

Additionally, you can also make outright gifts using IHT exemptions and reliefs available. The list below provides a note of some of the main exemptions available which do not require to be survived by 7 years from the date of gift:

  • Spouse/civil partner exemption – gifts between spouses/civil partners are exempt from IHT (where both are UK domiciled).
  • Annual exemption – the first £3,000 of gifts made each year are exempt from IHT. This exemption can be carried forward for one year if unused.
  • Small gifts exemption – gifts of up to £250 each year to any one individual
  • Marriage exemption – wedding gifts up to £5,000 by each parent; £2,500 by each grandparent; and £1,000 to any other individual are exempt from IHT.
  • Normal expenditure out of income exemption – provided you meet the conditions and have sufficient income to maintain your normal standard of living, gifts made of excess income are exempt from IHT.
  • Charity exemption – gifts to registered charities are exempt without limit.

If you’re concerned about the value of your estate and would like advice on ways to mitigate your exposure to IHT, please do not hesitate to contact Tracy Dickson, Steve Roberts or your usual AAB contact.

How AAB can help

Private Clients & High Net Worth Individuals

Our team support a diverse array of individuals such as employed professionals, business owners, families and international sports stars. As AAB clients, they all benefit from absolute confidentiality and share a unified goal of optimising and safeguarding their personal wealth. Our services extend far beyond mere tax return completion. In addition to standard personal tax compliance, our dedicated team of personal tax specialists delivers dependable and practical tax advice, ensuring full compliance and optimal positioning.

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