Inheritance Tax issues for you and your family to avoid

Inheritance Tax (IHT) in the United Kingdom is a tax on the estate (the property, money, and possessions) of someone who has passed away.

It may also apply to certain gifts made during a person’s lifetime.

The Tax is often labelled as the most hated one of them all.

You pay tax all of your life, and then they come for you in the grave. It doesn’t seem that fair to a lot of people.

However, there is no certainty in life apart from death and taxes and this links to two.

Last year the HMRC pulled in a staggering £7.1 billion in IHT, up £1 billion from the 2021/22 tax year.

This represents an increase of 16 per cent from the £6.1 billion raised in tax in the previous year.

Who doesn’t pay Inheritance Tax?

The outcry about the tax is perhaps louder than it needs to be.

There’s normally no Inheritance Tax to pay if either:

  • The value of your estate is below the £325,000 threshold
  • You leave everything above the £325,000 threshold to your spouse, civil partner, a charity or a community amateur sports club

Who does pay IHT?

The standard Inheritance Tax rate is 40%. It’s only charged on the part of your estate that’s above the threshold.

Well, only 4 per cent of estates paid IHT in 2020-21, but it is thought that this figure could rise to over 7 per cent over the forthcoming decade.

As you would expect, London has the most estates liable to pay the tax over the next ten years

Also, hotspots across Sussex, the Cotswolds and around Birmingham will have the greatest number per 100,000 residences.

It comes as, the Telegraph reported that: “Thousands more families to lose inheritance tax break on homes.

Inheritance Tax issues

There are a lot of issues around IHT and we have covered some for you here:



If you live for seven years after making certain gifts, including property, they will be exempt from IHT.

But if the person passes away before that time period then IHT will land on the beneficiaries in the will on a sliding scale.

If it is before three years then it returns to the flat 40 per cent rate.

So it would be a good idea to decide, in the will, which parties will pick up the tax bill if the person dies prematurely.


Living abroad

If your permanent home is abroad, Inheritance Tax is only paid on your UK assets, for example property or bank accounts you have in the UK.

It’s not paid on ‘excluded assets’ such as:

  • Foreign currency accounts with a bank or the Post Office
  • Overseas pensions
  • Holdings in authorised unit trusts and open-ended investment companies


Capital Gains Tax

Capital gains tax (CGT) is not applicable to property inherited in a will.

However, you will trigger a tax bill if you do not live in the property as your main dwelling and later sell it at a profit.

The tax bill is calculated on the increase in value of the property.


Stamp Duty

If you are a first time buyer then you do not pay stamp duty if your purchase is under £425,000 and there is some tax relief up to £625,000.

Also, you do not need to pay stamp duty on a property you have been handed down.

Here is the catch, if you have been given a property (over 50 per cent of the share) then you won’t be able to benefit from the first time buyer stamp duty cut.


Blended families 

When a family consists of a couple who have children from previous relationships, then there is a potential minefield, especially if there is a lack of communication.

Also, combining estates, when you marry a new partner, could push you over the Inheritance Tax threshold.

Then there is the difficult issue of children and step-children, how do you slice up your assets?

A financial adviser can assess your circumstances and give you a plan of how to move forward.

If you want anymore advice we’d be delighted to help.  Get in touch and we’ll talk you through your options, or sign up to our monthly newsletter, to keep your finger on the pulse. 

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