What are the current rates and allowances for Inheritance tax?

  To 2020/21 To 2008/09
Nil-rate band** £325,000 312,000
Lifetime rate 20% 20%
Death rate 40% 40%
Death rate where 10% or more left to charity 36% (from 2014/15)  

*Increased by any unused portion of a deceased spouse or civil partner's nil rate band

**From April 2017 a new additional nil rate band will be available to cover the family home. This will be phased in, beginning at £100,000 per individual and increasing by £25,000 each year until it reaches £175,000 in 2020/21.  See Main Residence Nil Rate Band.

Tax is payable within 6 months of the end of the month of death, e.g. a death in December 2018 will mean the IHT must be paid by 30 June 2019. 

See: Estate planning checklist

What's new?

Rates & Allowances

  • The Residence Nil Rate Band increases to £175,000 from April 2020, this measure was announced in 2017 and is part of the transitional introduction of the relief. 

See IHT: Residence Nil Rate Band.

Domicile and trusts

  • Finance Bill 2020 includes proposed legislation to prevent property added to trusts by UK-domiciled or deemed domiciled individuals from being excluded property.


Non-domiciled individuals 

A non-UK domiciled individual is exempt from IHT on non-UK assets, unless a spousal election has been made.

  • An individual who has become UK-domiciled and is resident in the UK for the three years before death is also treated as UK-domiciled on death.
  • The estate of a foreign domiciliary is excepted, which means that there are no IHT reporting requirements to HMRC, provided they died abroad, they have never held a UK domicile and the UK assets in their estate, passing by will or survivorship, are shares or cash with a death value of less than £150,000. 
  • See Non-domicile status & tax and IHT: Gifts

Spouses and civil partners

Lifetime and death transfers between UK domiciled spouses/civil partners are exempt from IHT. Any unused nil-rate band of the first spouse to die may be carried forward and added to that of the second spouse. See Transferable Nil rate band.

See IHT: Gifts

Charitable donations

If a donation of at least 10% of the net value of the estate is made to charity the IHT rate decreases to 36%. The charity concerned will receive more if a donor is able to donate under the Gift Aid scheme whilst alive because the charity will be able to receive a basic rate tax credit. See IHT discount on charitable donations.

Business property reliefs

Exemptions   
Business property: a business, an interest in a business, a controlling interest of unquoted shares (inc. AIM shares) and unlisted shares (private company shares) 100%
Agricultural property 100%
A controlling interest in a listed company 50%
Assets used by the transferor's company or ex-partnership, assets held in a trust of which the deceased was a beneficiary and used in his business 50%

 * Relevant business property owned for at least two years prior to transfer/death.

For further details see: the Private Client sectionand IHT: Business Property Relief.

Exempt gifts

Certain gifts are exempt from IHT including those within the £3,000 annual exemption, small gifts (£250 per person) and certain gifts on marriage.

See IHT: Gifts

Potentially exempt transfers

Other gifts are taxable if the transferor dies within seven years of making the gift with a reduced charge (taper relief) if they survive at least three years.   

See IHT: Gifts 

 

 

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