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Will your beneficiaries have an Inheritance Tax Bill on your death?

View profile for Sophie Barnes
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Inheritance Tax (IHT) is payable on everything you own with a value on your death, including your home, your savings and investments, your jewellery, your car, and any other property or land. It is most commonly paid on death, however there may be some instances where it must be paid sooner, such as on creation of some trusts.

Inheritance tax is calculated at 40%.The current Inheritance Tax (IHT) allowance is £325,000 per person (2021/22 tax year). Married couples and civil partners are normally able to make use of each other's IHT allowance without special tax planning, meaning that up to the first £650,000 of their combined estate is free from IHT. In addition, you may be entitled to a Property IHT allowance, which was brought into effect in April 2017 and is applicable where the main residence is left to direct descendants, such as children or grandchildren. This is currently £175,000 per person, subject to the maximum value of the home.

This means that a married couple with children could potentially pass on up to £1 million without being liable to any Inheritance Tax if the second death happened in this tax year.

If you believe your beneficiaries may have to pay Inheritance Tax on your death, there are many planning options you could use to mitigate this:

  • Gifts – There are annual gift allowances which are exempt from Inheritance Tax. Any gifts which exceed these allowance, will however remain in your estate for 7 years.
  • Pensions – Pensions are one of the most tax-efficient ways to pass on your wealth, because pensions are likely to fall outside of your estate for IHT purposes. If you pass away before the age of 75, benefits left inherited by the nominated beneficiary completely tax free. If death occurs after the age of 75, whilst still passing on Inheritance Tax-free, any future withdrawals will be taxed at the beneficiaries’ marginal income tax rate.
  • Specialist investments – Some investments, such as AIM (alternative investment market) can qualify for Business Property Relief, and become exempt from IHT once held for 2 years.
  • Life Assurance – A whole of life policy could be used to meet or reduce a possible Inheritance Tax bill upon death, and providing it is written into trust, the proceeds would fall outside of the estate for IHT purposes.
  • Trusts – Trusts are a complex matter, however can be used to move assets out of your estate over a period of time.


If you want to find out more, please do not hesitate to get in touch with our team for expert, personalised advice on this area.