Dying isn’t the cheeriest subject to think about, so it’s hardly surprising that inheritance tax (IHT) planning often falls to the bottom of our list of financial priorities.


HM Treasury took in a record £5.4 billion from IHT in 2018-19, yet nearly half of us (40%) don’t even know how much can be passed onto beneficiaries free of inheritance tax, according to recent research by Zurich.

Many people fail to swot up on IHT rules is because they assume it’s a tax only for the super-rich. However, rising property prices in many areas of the country mean growing numbers are now be liable for IHT, which is charged at 40% and applies to the proportion of your estate valued above £325,000 (£650,000 for married couples).

The average inheritance tax bill in London was more than £225,000, latest government figures show, whereas in Wales, it was just over £125,000. HM Treasury predicts that by 2023, IHT will boost its coffers by £7 billion.

Sean McCann, Chartered Financial Planner at NFU Mutual, said: “Inheritance tax is a growing source of revenue for the Government. The complexity of the rules leaves many fearful and confused about how best to pass their wealth onto their families.”

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Getting to grips with IHT rules

Although there are plans to simplify IHT, current rules can be complicated, making it tricky to work out exactly how much you can leave without your loved ones being hit with a tax bill.

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For example, each person has an annual tax gift allowance of £3,000 per person (for the year 2018/19). If you want to give away larger sums, you need to live seven years after making that gift for it to remain IHT-free.

Zurich’s research found that 84% of people haven’t heard of the £3,000 allowance, and just 6% have taken advantage of it. Alistair Wilson, spokesman for Zurich, said: “Everyone wants to leave as much of their wealth as possible to their loved ones, but could be losing thousands by falling into the many traps.”

There are several other allowances which may help you reduce any potential IHT liability. For example, you can make any number of small individual gifts worth up to £250 in any one tax year on top of your £3,000 allowance. You don’t have to pay IHT on a wedding or civil partnership gifts worth up to £5,000 if given to your child, or £2,500 if you’re making a gift to your grandchild or great-grandchild.

There is also a £125,000 ‘family home allowance’ which can be used against the value of your property if you leave it to your children or grandchildren. This will increase to £150,000 next April when the 2019/20 tax year begins, before reaching £175,000 in the 2020/21 tax year.


If you need help calculating any potential IHT liability or want to find out more about reducing any potential bill you might leave, seek professional financial advice.