Inheritance tax planning

Writing a will also helps ensure your family does not pay more inheritance tax than necessary, apart from guaranteeing your estate is divided as you wish after your death. It is important that you know what your estate is worth when making your will, so that inheritance tax can be explained and examined.

How much non-taxable money can I leave to my family and friends?

The current inheritance tax threshold (or nil rate band) for each individual is £325,000 (from 6 April 2011). 
For a married couple or for those in a civil partnership, this may be increased on the second death by up to 100% (this is a transferable nil- rate band based on the current inheritance tax threshold of £650,000).

What can I give away in gifts before being taxed?

One of the most confusing elements of inheritance tax is what you are allowed to give away as gifts. Below are some general points on gifts that are exempt from inheritance tax:

  • Gifts between a husband and wife or civil partners who are both domiciled (have their main home) in the UK. (Where the gift is from a party domiciled in the UK to a partner domiciled abroad, only gifts up to £55,000 are exempt.)
  • Gifts to UK-established charities, national museums, universities, the National Trust and certain other bodies (such as political parties - broadly those with at least two MPs)

"One of the most confusing elements of inheritance tax is what you are allowed to give away as gifts"

  • Gifts to registered housing associations and community amateur sports clubs
  • Gifts made as part of your “normal expenditure” - this exemption allows you to give away money from surplus income, providing the gift doesn’t reduce your standard of living, is not from capital and forms some pattern of regular spending.
  • Gifts to people getting married up to: £5,000 from each parent of the couple; £2,500 from each grandparent or more remote relative; £2,500 from bridegroom to bride (and vice-versa) and between civil partners; £1,000 from anyone else
  • Any number of gifts up to £250 to each recipient. These gifts are meant to cover things such as birthday and Christmas presents
  • Gifts for the maintenance of husband, wife or civil partner, ex-husband, ex-wife or ex-civil partner and relatives dependent on you through old age or infirmity. Additionally, gifts for maintenance, education or training of your children (including step- and adopted children) in full-time education or aged 18 or under.
  • Gifts up to £3,000 in total in each tax year. You cannot combine these with a £250 gift to the same person. Husbands, wives and civil partners each have a £3,000 limit. You can carry any unused part forward one year only, to the next year. This gift is known as the “annual exemption”
  • Gifts made within seven years of your death. When you die, your estate may also include any gifts you made within the last seven years before your death; these are known as potential exempt transfers (PETs)

If you have made a gift which does not fall into the categories above, it is likely to be subject to inheritance tax.

Helping you avoid paying too much tax

To meet your concerns about inheritance tax, we provide clear advice on current legislation and what legal instruments may be used in your will to help you avoid paying too much inheritance tax.