Inheritance Tax Planning Solicitors

Inheritance tax is charged at 40% on the value of your estate above the nil rate band (£325,000 per person). If you leave your home to direct descendants, an additional residence nil rate band of up to £175,000 applies. Married couples and civil partners can transfer unused allowances, giving a combined threshold of up to £1 million. The actual amount depends on your estate's composition, any gifts made in the last seven years, and reliefs available.

Gifts made more than seven years before death are generally exempt from inheritance tax (potentially exempt transfers). Gifts made within seven years may be subject to IHT on a sliding scale — known as taper relief. The full 40% rate applies to gifts made within three years of death, reducing to 8% for gifts made six to seven years before death. Keeping records of gifts is important for your executors.

Placing your home in trust can form part of an IHT planning strategy, but it is not a simple solution. A property protection trust (life interest trust) can protect a share of the property for the next generation, but the surviving spouse's share may still be included in their estate. Deliberately transferring assets to avoid care fees can be treated as deprivation of assets. We advise on the circumstances in which a property trust is effective and appropriate.

Business Property Relief (BPR) is a relief that can reduce the value of qualifying business assets for IHT purposes by 50% or 100%. Qualifying assets include shares in unquoted trading companies, interests in a business partnership, and certain business property. The relief is subject to conditions — including a minimum two-year ownership period. We advise on whether your business interests qualify and how to structure your estate to maximise the relief.

From April 2027, unused pension funds will be included in the value of an estate for inheritance tax purposes. This is a significant change — previously, pensions were generally outside the estate and could be passed to beneficiaries free of IHT. The change affects defined contribution pensions and will require many people to review their estate planning. We advise on the implications and planning strategies available.

You can make gifts during your lifetime that reduce the value of your estate for IHT purposes. The annual exemption allows gifts of up to £3,000 per year free of IHT. Additional exemptions apply to wedding gifts, small gifts, and gifts from surplus income. Larger gifts are potentially exempt transfers — they fall outside your estate if you survive seven years from the date of the gift. We advise on a structured gifting strategy that balances tax efficiency with your own financial security.