The Inheritance Tax Act 1984 is a complex piece of legislation, but its most important provisions can be summarised clearly. Understanding them is the first step to effective estate planning.
The Nil-Rate Band (£325,000)
The nil-rate band is the foundation of IHT planning. Every individual has a £325,000 threshold below which no IHT is charged. Estates above this threshold are taxed at 40% on the excess. The NRB has been frozen since 2009 and is set to remain frozen until at least 2030.
The Residence Nil-Rate Band (£175,000)
The residence nil-rate band provides an additional £175,000 allowance when you leave your main home to direct descendants. It is transferable between spouses, meaning a couple can shelter up to £1 million from IHT when both allowances are combined.
Business Property Relief
Business property relief (BPR) provides up to 100% relief from IHT on qualifying business assets, including shares in unlisted trading companies and interests in trading partnerships. It is designed to prevent family businesses from having to be sold to pay an IHT bill. Note that the 2024 Autumn Budget announced changes to BPR from April 2026.
Agricultural Property Relief
Agricultural property relief (APR) provides up to 100% relief on agricultural land and buildings used for farming. Like BPR, it is subject to changes announced in the 2024 Autumn Budget, with a combined cap of £1 million for 100% relief from April 2026.
The spousal exemption is one of the most valuable provisions in the Act. Transfers between spouses and civil partners are completely exempt from IHT — both during lifetime and on death. This allows couples to defer IHT planning until the second death.