“Every man is entitled if he can to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow tax-payers may be of his ingenuity, he cannot be compelled to pay an increased tax.”
Lord Justice Tomlin – IRC v Duke of Westminster (1936)

In simple terms, Inheritance Tax (IHT) is a tax charged when wealth changes hands, primarily charged on death but may also arise at points during lifetime. Its full legal definition is that it is a charge on transfers of value.

Anything that a person leaves to their surviving spouse or civil partner is free of IHT.
Every person has a Nil Rate Band (NRB) available to them. Any assets up to this value will not be charged IHT. Assets above the NRB will be charged. The current value of the NRB is £325,000. IHT will either be charged on death, or at certain points during lifetime.

On death, IHT will be charged in relation to the deceased’s estate and will consider the value of the estate at death, along with gifts made within 7 years of death (Potentially Exempt Transfers) and Gifts with Reservation of Benefit.

During lifetime, IHT is charged on gifts to relevant property trusts and certain gifts to companies.
For anything above the NRB, the rate of IHT on death is 40%, this however can be reduced to 36% if 10% or more of the net value of the estate is left to charity.

The rate of IHT for chargeable lifetime gifts is 20%. Since April 2017, each person also has a Residential Nil Rate Band (RNRB) available to them. The RNRB rules are complex but in short, RNRB will be available if a person passes their share in their main residence to their descendants on death.