If you inherit money or property in the UK, you might be hit with Inheritance Tax (IHT). It’s a tax on the value of an estate after someone dies, and it can feel like a nasty surprise if you’re not prepared. The good news? There are clear rules, useful reliefs and simple steps you can take to lower the amount you owe.
The basic nil‑rate band is £325,000. Below that, no IHT is due. Anything above the band is taxed at 40% unless a relief applies. In 2025‑26 you also get a Residence Nil‑Rate Band (RNRB) of up to £175,000 if you pass your home to direct descendants. Together they can protect up to £500,000 (or £675,000 if you’re married or in a civil partnership) from tax.
So, a married couple with a house worth £400,000 and a total estate of £600,000 could potentially keep the whole amount tax‑free – but only if the house goes to children or grandchildren. If it goes to a sibling, the RNRB disappears and the tax bill rises.
1. Use your spouse’s allowance. Transfers between spouses are free from IHT, and any unused nil‑rate band can be transferred to the surviving partner. This effectively doubles the tax‑free amount for a couple.
2. Make regular gifts. You can give up to £3,000 each year without it being added to your estate (the annual exemption). If you haven’t used it in the previous three years, you can carry it forward, letting you give up to £9,000 one‑off.
3. Small gifts and celebrations. £250 per person per year is tax‑free, and you can also give birthday or wedding gifts up to £5,000 without charge, as long as the recipient isn’t your spouse.
4. Pay IHT early. If you have cash on hand, paying the tax from your own funds before the estate is settled can avoid the 6% interest that HMRC charges on late payments.
5. Set up trusts wisely. Certain trusts can pull assets out of your estate, but they come with their own tax rules. A professional can help you decide if a discretionary trust or a life interest trust makes sense for your situation.
All these options work best when you start planning early. Waiting until the last minute often means you miss out on exemptions or have to sell assets quickly.
Our team at Harmony Financial Services can run an inheritance tax calculator for you, show you exactly where you stand and suggest the right mix of gifts, trusts and allowances. We keep things simple – no jargon, just clear steps that fit your family’s needs.
Remember, IHT isn’t a fixed rule you have to accept blindly. By understanding the thresholds, using spousal allowances, gifting strategically and considering trusts, you can protect a large chunk of your wealth for the people you love. Got questions? Reach out, and we’ll walk you through a personalised plan that keeps the tax man at bay while staying true to your financial goals.
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