Inheritance Tax & Gifts FAQs

Inheritance tax is charged at 40% on the part of an estate above the tax-free thresholds. Everyone has a nil-rate band of £325,000, and there is an additional residence nil-rate band of up to £175,000 when a home is passed to direct descendants. Both are frozen until April 2031. Spouses and civil partners can usually pass everything to each other tax-free.

Yes. Some gifts, such as those covered by the £3,000 annual exemption, £250 small gifts and regular gifts from surplus income, are exempt straight away. Other larger gifts fall outside your estate if you survive them by seven years. It is worth taking advice before making large gifts.

Inheritance tax (IHT) is a tax on the estate of someone who has died, and on some lifetime gifts. It is charged at 40% on the value above the available tax-free allowances.

The standard nil-rate band is £325,000 per person. It has been frozen since 2009 and is currently frozen until April 2031.

The residence nil-rate band (RNRB) is an extra allowance of up to £175,000 when your home, or your share of it, passes to your direct descendants, such as children or grandchildren. It is frozen until April 2031.

A married couple or civil partners can pass up to £1 million free of inheritance tax: two nil-rate bands of £325,000 and two residence nil-rate bands of £175,000, where the home goes to direct descendants.

No changes were made to inheritance tax rates or thresholds. The nil-rate band stays at £325,000 and the residence nil-rate band at £175,000, both frozen until April 2031, and pensions still come into the estate from April 2027. The Budget did announce new rules, once legislated, limiting when debts linked to trust property can reduce its value for inheritance tax, from 28 October 2026. If your plan includes trusts or pensions, it is a good time to review it.

The Government has confirmed the £325,000 nil-rate band and £175,000 residence nil-rate band will stay frozen until April 2031. As property values rise, more estates are drawn into inheritance tax.

Children, grandchildren and further descendants, including stepchildren, adopted and fostered children, and their spouses or civil partners. Nieces, nephews and siblings do not qualify.

No. Nephews and nieces are not direct descendants, so the RNRB would not apply to that gift.

No. It only applies when the home passes to direct descendants. If you have no children or grandchildren, it will not apply.

The RNRB is reduced by £1 for every £2 by which the estate exceeds £2 million, so it is lost entirely for a single estate worth £2.35 million or more.

The downsizing addition can preserve the residence nil-rate band if you sold or downsized after 8 July 2015, provided you leave assets of equivalent value to direct descendants.

Yes. Any unused percentage of the nil-rate band and residence nil-rate band can be transferred to a surviving spouse or civil partner and claimed on their death.

Gifts between spouses or civil partners who are both UK-domiciled or long-term UK resident are generally exempt. A limit applies if the recipient spouse is not long-term UK resident, unless they elect to be treated as such.

Yes. The spouse exemption does not apply to unmarried partners, so anything above the nil-rate band left to a cohabitant may be taxed at 40%.

The main rate is 40% on the part of the estate above the nil-rate bands. A reduced rate of 36% applies if 10% or more of the net estate is left to charity. Lifetime transfers into some trusts are charged at 20%.

If at least 10% of your net estate (after deductions and allowances) goes to charity, the rest of the taxable estate is charged at 36% rather than 40%.

Executors or administrators pay it from the estate. Beneficiaries do not usually pay it themselves, although recipients of lifetime gifts may be liable if the estate cannot pay.

Inheritance tax is usually due by the end of the sixth month after the month of death. Interest is charged after that date.

Everything you own worldwide (if UK domiciled or long-term UK resident) is valued at market value on the date of death, less debts, funeral costs and reliefs. Certain gifts in the last seven years are added back.

From 6 April 2027, most unused pension funds and pension death benefits will be included in your estate for inheritance tax. Before then, most defined contribution pensions fall outside the estate.

From 6 April 2027 unused pension funds and most pension death benefits will count towards the estate for inheritance tax, while death-in-service benefits are excluded. Personal representatives will be responsible for reporting and paying the tax. The October 2026 Budget confirmed they will also be able to ask the pension scheme to pay the tax due on the pension directly to HMRC in certain circumstances.

Pension funds left to a spouse or civil partner will generally remain exempt from inheritance tax because of the spouse exemption. Income tax rules for beneficiaries still apply.

No. The Government confirmed that death-in-service benefits paid from registered pension schemes will remain outside the scope of inheritance tax after April 2027.

Adding pension values to the estate may push some estates above £2 million, reducing the residence nil-rate band through the taper.

If the policy is not written in trust, the payout forms part of your estate and may be taxed at 40%. Writing it in trust usually keeps it outside your estate and speeds up payment.

Gifts to individuals are potentially exempt transfers (PETs). If you survive seven years after making the gift, it falls outside your estate for inheritance tax.

A PET is a lifetime gift to an individual that becomes fully exempt if you survive seven years. If you die within seven years, it uses up your nil-rate band and may be taxed.

Taper relief reduces the tax on a gift if you die between three and seven years after making it, but only where the gift exceeds the nil-rate band. It reduces the tax, not the value of the gift.

You can give away £3,000 a year free of inheritance tax. Any unused amount can be carried forward one year, giving up to £6,000.

You can give up to £250 per person per tax year to as many people as you like, provided they do not also receive your £3,000 annual exemption.

You can give up to £5,000 to a child, £2,500 to a grandchild or great-grandchild, and £1,000 to anyone else for their wedding or civil partnership.

Regular gifts made from your surplus income, which do not reduce your standard of living, are immediately exempt with no limit. Good records are essential for executors to claim this.

Yes. Gifts to UK-registered charities, whether during your life or in your will, are exempt from inheritance tax.

If you give something away but keep using or benefiting from it, such as giving your home to children but still living there rent-free, it is treated as still part of your estate.

Only if you pay full market rent, otherwise it is a gift with reservation and remains in your estate. There may also be capital gains tax and other risks, so please speak with us first.

Yes. Keep a record of the date, amount, recipient and any exemption claimed. Your executors will need this to complete the inheritance tax forms.

Gifts to grandchildren are potentially exempt transfers, so they fall outside the estate after seven years. Annual, small gift and surplus-income exemptions can make them immediately exempt.

Gifts to an unmarried partner are potentially exempt transfers. They fall out of the estate after seven years, but there is no spouse exemption.

Most lifetime gifts into trusts are chargeable lifetime transfers. Tax at 20% is due on the amount above the available nil-rate band, and trusts may face ten-yearly and exit charges.

Business Relief reduces the value of qualifying business assets for inheritance tax. From 6 April 2026, 100% relief applies to the first £2.5 million of combined business and agricultural property, with 50% relief above that. Any unused allowance can pass to a surviving spouse or civil partner, so a couple can pass on up to £5 million of qualifying property with 100% relief. Business owners should speak with us about how this applies to them.

Agricultural Property Relief reduces the value of agricultural land and buildings for inheritance tax. From 6 April 2026, 100% relief is capped at a combined £2.5 million allowance with Business Relief; value above that gets 50% relief. Any unused allowance can pass to a surviving spouse or civil partner, so a couple can pass on up to £5 million of qualifying property with 100% relief. Farmers should speak with us about how this applies to them.

The house is valued at market value at death, less any mortgage. It is added to the rest of the estate, then allowances and reliefs, including the residence nil-rate band, are deducted.

Yes. Debts such as a mortgage are deducted from the value of the estate, provided they are repaid from the estate.

Yes. Reasonable funeral expenses, including a headstone, can be deducted from the estate’s value.

Only the deceased’s share, usually half, counts for inheritance tax, even though the survivor takes the whole account.

Yes, ISAs form part of your estate for inheritance tax. A surviving spouse or civil partner can inherit an additional ISA allowance equal to the value of the deceased’s ISAs.

There are several recognised ways, such as using the gift exemptions and the seven-year rule, leaving money to charity, writing life insurance in trust and making sure the residence nil-rate band is available. For a personal plan, please speak with us.

Yes, spending reduces your estate. Enjoying your money during retirement is a legitimate choice, but keep enough for your own needs in later life.

If someone dies within five years of inheriting assets that were taxed, quick succession relief reduces the tax on their estate.

Not usually. Tax is paid by the estate before you receive your inheritance. You may have to pay tax on lifetime gifts if the donor dies within seven years and the estate cannot pay.

Executors must disclose gifts made in the seven years before death on the inheritance tax forms. Banks’ records and property transactions can also show gifts.

Yes. Inheritance tax is a UK-wide tax and the rules are the same in Wales, England, Scotland and Northern Ireland.

Add up your assets, deduct debts, deduct the nil-rate band and residence nil-rate band (if available), and 40% applies to the rest. Reliefs and lifetime gifts affect the result, so for an exact figure please speak with us.

You can give any amount, but only certain gifts are immediately exempt. Larger gifts fall outside your estate if you survive seven years.

The recipient does not pay income tax on a gift. Inheritance tax may be due if the donor dies within seven years. Capital gains tax may apply to the giver if the gift is an asset such as property or shares.

Yes. Gifting an asset such as a second property or shares is treated as a disposal at market value, so the giver may owe capital gains tax on any gain.

Yes. You can make a gift, which is a potentially exempt transfer, or a loan. A gifted deposit letter will usually be needed by the lender. Consider protecting the money if your child is buying with a partner.

A loan keeps the money in your estate but lets you ask for it back, for example on divorce. A gift starts the seven-year clock. Document either properly.

A declaration of trust records how property is owned and who contributed what, protecting a gifted or loaned deposit if a couple separates.

The sooner, the better for the seven-year rule, but only give what you can afford to lose. Keep enough for your own future needs.

Lifetime planning includes gifts, trusts, pension nominations, insurance, business succession and property ownership arrangements made during your life to protect your family.

Yes. If you give it away and no longer benefit from it, it is a potentially exempt transfer. The recipient takes on ownership and may later face capital gains tax.

It depends on the type. Defined contribution pensions can usually be paid to nominated beneficiaries. Defined benefit pensions may pay a spouse’s or dependant’s pension. State Pension may be inheritable in limited cases.

An expression of wish form tells your pension scheme who you would like to receive death benefits. It is not usually binding but trustees normally follow it. Keep it up to date.

Usually not. Most pension death benefits are paid at the scheme’s discretion, guided by your nomination form, and do not pass under your will.

You may be able to inherit some extra State Pension from a spouse or civil partner, depending on when you reached State Pension age and the type of State Pension they had.

Yes. As most unused pensions will count towards your estate for inheritance tax from April 2027, it is sensible to check your nominations and how your pension fits with your will. For advice on the pension itself, please speak with us.

Usually, yes. A trust means the payout goes directly to your chosen beneficiaries, normally without probate and outside your estate for inheritance tax.

Most insurers provide trust forms. You assign the policy to trustees. It is usually straightforward, but check with your insurer or speak with us first.

A benefit from an employer that pays a lump sum, often a multiple of salary, if you die while employed. Complete the nomination form so it goes to the right person.

It depends on the options chosen. Some stop on death, others continue to a spouse or pay for a guaranteed period.

It is a plan for what happens to your share of a business if you die, become seriously ill or retire, so ownership and control pass on exactly as intended, without forced sales or disputes.

Shareholder protection is a cross-option agreement backed by life cover. If a shareholder dies or is critically ill, the remaining owners have the right, and the funds, to buy their shares, and the family receives fair value rather than being left with a shareholding they can’t use.

Key person insurance protects the business itself against the financial impact of losing a critical director, founder or employee to death or serious illness.

If you are a sole trader, the business assets form part of your estate. For companies and partnerships, it depends on your shareholding, the articles, partnership agreement and your will.

Yes. Your will should make clear who inherits your business interests. You may need a separate business LPA and a shareholder agreement to ensure the business can keep operating.

A cross-option agreement gives surviving owners an option to buy a deceased owner’s shares, and the estate an option to sell. It is commonly used in place of a binding buy-sell agreement.

It depends on the partnership agreement. Without one, the Partnership Act 1890 may dissolve the partnership. A clear agreement allows the business to continue.

The company continues, but a sole director’s death can leave no one able to act. The articles and shareholders’ powers determine how a new director is appointed.

The business ceases as a legal entity, and its assets and debts become part of the estate. Executors may continue trading only if the will permits.

A death-in-service style policy that a company pays for an individual employee or director. The payout goes to the family through a trust.

Options include lifetime gifts of shares, passing them in your will, family trusts and gradual transfers. Tax and control both matter, so please speak with us alongside your estate plan.

A separate property and financial affairs LPA covering business assets only, so trusted colleagues can run your business if you lose capacity.

Yes. You could sell or gift shares to employees, set up an employee ownership trust, or leave shares in your will.

Sole trader and partnership debts may be payable from your estate. Company debts generally stay with the company unless you gave personal guarantees.

A shareholder agreement sets out what happens if a shareholder dies, leaves or loses capacity. Without one, shares may pass to people with no interest in running the business.

A plan covering who takes on the farm, provision for non-farming children, and wills, LPAs and partnership agreements to match. The April 2026 relief changes mean farmers should also speak with us.