UK Inheritance Tax & estate planning, explained

Inheritance Tax (IHT) is a UK tax on the value of what you own when you die (your "estate"), and on some gifts made before death. It isn't paid by your beneficiaries directly — it's paid by your estate (via your executors) before the remaining assets are distributed, and it reduces what's left to inherit.

Every estate gets a tax-free nil-rate band (NRB) of £325,000, frozen at that level since 2009 and currently due to stay frozen until at least April 2030. If you own a home and leave it to children, grandchildren or other direct descendants, you may also get a residence nil-rate band (RNRB) of up to £175,000 on top. The RNRB tapers away for larger estates — it reduces by £1 for every £2 an estate is worth over £2 million, and can be reduced to zero for very large estates. Unused NRB and RNRB can typically be transferred to a surviving spouse or civil partner, effectively doubling both bands for the second death.

The standard rate is 40% on the portion of your estate above your combined NRB and RNRB. There is no tax at all on anything within those bands.

Yes — if you leave at least 10% of your "baseline" estate (broadly, the taxable estate after deducting reliefs and the nil-rate bands) to charity, the rate on the rest drops from 40% to 36%.

In law, everything you own at the date of death counts — not just the "big" items like property, savings and investments, but every physical possession too: furniture, clothing, tools, kitchenware, right down to a £10 lamp. There is no blanket legal exemption for low-value items. In practice, though, HMRC does not expect (or want) a line-by-line inventory of every household object. Their own guidance allows a single, reasonable lump-sum estimate for ordinary household and personal effects as a whole — it's only items of specific, meaningful value (see below) that need identifying and valuing individually. This tool's asset list is meant to capture the things worth tracking individually for planning purposes, not a full room-by-room inventory — treat "everything else" as a single rough household-contents figure if you want the total to be realistic.

Only as a starting point, not as the answer. A contents insurance policy (and any separate "specified items" list on it, e.g. jewellery or art scheduled by name) is a genuinely useful record of what exists and roughly what it would cost to replace — but insured/replacement value and probate value are different things, and mixing them up almost always overstates the estate. Insurance is generally about new-for-old replacement cost; Inheritance Tax valuation is the price the actual, used item would fetch if sold in the open market on the date of death — for most furniture, electronics, clothing and everyday possessions, that second-hand figure is considerably lower than what it cost new or what it would cost to replace. Use the insurance schedule to make sure nothing of note gets forgotten, then value each item (or the household contents as a whole) at realistic second-hand/resale prices, not the insured amount.

Only what the person actually owned at the date of death is part of the estate — if an item had already been sold, given away, lost, or destroyed before then, it simply isn't there to value. The one exception worth knowing: something genuinely given away as a gift during their lifetime can still be pulled back into the Inheritance Tax calculation under the 7-year rule (see "What is the 7-year rule for gifts?" above), even though it's physically gone and isn't part of the estate being distributed. Something lost, damaged or destroyed after the date of death (a fire during probate, a car written off before it's sold, and so on) doesn't change the Inheritance Tax value at all — that's fixed at the date of death — though it can obviously affect what's actually left to distribute, and may be a separate matter for the estate's own insurance.

Not as a separate calculation — because the valuation is always done at the date of death, at realistic second-hand market value, age and wear are already priced in rather than something you apply afterwards. There is no depreciation schedule or formula to follow: a 10-year-old car or a well-used sofa is simply valued at what a buyer would actually pay for it, in that condition, on that date. This cuts both ways — it usually pulls ordinary possessions well below what they originally cost, but it can also mean a well-maintained item (or a genuine antique, where age adds value rather than reducing it) is worth more than you might assume.

Not for every item — but the estate's executors do need to be able to justify the figures if HMRC ever asks, and it's the executors who carry the legal responsibility for getting it right. For ordinary household and personal effects, a sensible written note of how a lump-sum estimate was reached (e.g. "similar to recently sold listings for comparable items") is normally enough. For anything of real, specific value — jewellery, art, antiques, a collection, a classic car — a dated, professional valuation obtained around the time of death is the strongest evidence, and is genuinely worth paying for rather than guessing: it protects the executors personally if the figure is ever queried, and it's the only defensible answer for anything that would need its own line on form IHT407.

There's no fixed statutory figure — nothing in law says "ignore anything under £X" — but there is a very well-established practical threshold, and it comes from HMRC's own approach rather than a loophole. Ordinary household and personal possessions (furniture, clothes, everyday electronics, kitchen items, and so on) are normally rolled up into one reasonable lump-sum estimate rather than itemised individually, and HMRC generally accepts a fairly modest total for a typical household's general contents unless there's a specific reason to think otherwise. What changes that is any single item — or a set of related items, like a jewellery collection — worth enough on its own to matter to the total (broadly, low hundreds of pounds and up is where it's worth pausing to check, though there's no bright line): those need identifying and valuing individually, and often professionally, rather than being absorbed into the general estimate.

For ordinary personal effects, yes — this is extremely common and entirely normal practice, and it's exactly what the lump-sum household-contents estimate above is meant to accommodate: once that total figure has gone into the Inheritance Tax calculation, family members physically sorting out who takes the furniture, the everyday jewellery, the books and the keepsakes doesn't change anything about the tax already accounted for. Many wills specifically anticipate this with a "personal chattels" clause, leaving it to be divided as the family agrees rather than naming who gets each object. Where this stops applying is anything that was (or should have been) identified as individually valuable — a genuinely valuable painting, a significant piece of jewellery, an antique, a collection. Those need to be properly valued and accounted for in the estate on their own merits regardless of who ends up with them; treating something valuable as just another item in an informal "who wants what" sort-out, instead of declaring it, isn't a grey area — it's under-declaring the estate.

Yes, transfers between UK-domiciled or long-term-resident spouses and civil partners are entirely exempt from Inheritance Tax, with no upper limit. This only applies to a legally married spouse or registered civil partner — it does not apply to an unmarried partner, however long the relationship.

The unlimited spouse exemption can be restricted where one spouse doesn't meet the UK's residence test for Inheritance Tax (see "long-term resident" below) — historically there was a fixed cap in this situation, and the rules were also updated as part of the 2025 shift from domicile to residence. If this applies to you, it's worth checking your specific position with a solicitor rather than assuming the general unlimited exemption applies.

Yes, gifts to UK-registered charities (during life or in your will) are entirely exempt from Inheritance Tax, and can also unlock the reduced 36% rate on the rest of your estate if they reach the 10% threshold above.

A gift to an individual (not into most trusts) is a "Potentially Exempt Transfer" (PET). If you survive 7 years from the date of the gift, it falls out of your estate entirely and no tax is due on it. If you die within 7 years, it's brought back into your estate for tax purposes, using the nil-rate band available at your death.

Taper relief is commonly misunderstood — it does not reduce the value of the gift itself, only the rate of tax charged on it, and only if tax is actually due (i.e. the gift, combined with the rest of your estate, exceeds the nil-rate band). It applies on a sliding scale: 0% relief (full 40%) if you die within 3 years, then 20% off (yrs 3–4), 40% off (yrs 4–5), 60% off (yrs 5–6), 80% off (yrs 6–7), and 100% relief (no tax at all) once you've survived a full 7 years.

You can give away £3,000 a year completely tax-free (the "annual exemption") — if you didn't use last year's allowance, you can carry it forward one year, giving a possible £6,000 in one go. Separately, you can give up to £250 to as many individual people as you like each year, as long as they haven't also received part of your £3,000 allowance. Wedding or civil partnership gifts are also exempt up to £5,000 from a parent, £2,500 from a grandparent or great-grandparent, or £1,000 from anyone else.

Yes — if you make regular gifts out of your genuine surplus income (salary, pension, dividends, rental income and similar — not capital or savings), and the gifts don't reduce your normal standard of living, they are immediately exempt from Inheritance Tax and completely separate from the 7-year rule: there's no waiting period, no survival risk, and no fixed monetary limit. This is one of the most under-used exemptions, but it needs a clear, documented pattern of regular giving (HMRC expects this over at least 3-4 years) to be defensible — a one-off large gift doesn't qualify, and your executors will need to complete form IHT403 after your death to actually claim it.

No — reasonable payments for the maintenance of a spouse or former spouse, for a child's education or training (typically until they stop full-time education), or for a dependent relative fall outside the gift rules entirely under s.11 IHTA 1984. They're not a Potentially Exempt Transfer and don't use up your £3,000 annual exemption or any other allowance — there's no fixed limit, as long as it's genuinely reasonable provision for one of those specific people, not a general-purpose gift relabelled as maintenance. You can log this in the Gift Planner as a "Family maintenance payment".

If you give something away but keep some benefit from it — the classic example is gifting your house to your children but continuing to live in it rent-free — HMRC treats it as if you'd never given it away at all, and it stays fully in your taxable estate regardless of how many years pass. To make a gift like this work, you generally need to give up all benefit (e.g. pay a full market rent if you keep living there).

This tool groups the different property-specific options together under one "Property planning" strategy, each set up separately: (1) selling a home — recorded as a list of sale events (you can log more than one over the years, e.g. downsizing once and later selling that smaller home too), each picked from your asset list or entered manually — covers downsizing to somewhere smaller, moving to a similar or different home, renting with no replacement, or selling to help fund care; whichever it was, if you sold or gave away your *main* home on or after 8 July 2015, you can often still claim the Residence Nil-Rate Band it would have earned, as long as broadly equivalent value from the rest of your estate goes to children, grandchildren or other direct descendants. A second or third property was never part of that allowance to begin with, so selling one doesn't reclaim anything here (mark it as such when logging the sale) — it may instead trigger Capital Gains Tax, which this app doesn't calculate; (2) gift and leaseback — gift a home but keep living in it, set per property once "Lifetime gifting" is switched on. This still needs to be a genuine gift (see "What is a gift with reservation of benefit?" above) — either pay the new owner a full market rent, or (a separate, real exception) have them genuinely move in too and split the running costs with you fairly, no rent required; (3) equity release/a lifetime mortgage — releasing cash from a property while still living in it, modelled here as a loan against that property (real, compounding interest, less left to leave behind); (4) a life interest trust — set up in your will rather than during your lifetime, it gives your partner the right to live in the property for their life, then it passes to your children. This doesn't reduce Inheritance Tax (it still qualifies for the Residence Nil-Rate Band exactly as a normal gift to descendants would) — its real purpose is protection, stopping your share being used up by your partner's own later care fees or lost if they remarry, modelled here by excluding that property from your partner's care-cost funding options. Options (2)–(4) only apply to a home you actually live in or use — a buy-to-let, commercial, agricultural, or land property doesn't qualify (set a property's type when adding or editing it). None of these are simple — each genuinely benefits from independent legal/financial advice before acting. One thing deliberately not offered: selling your home to a beneficiary and then getting the money back some other way (a loan, a gift back, etc.) while still benefiting from the property. That's exactly what the Pre-Owned Assets Tax (2005) was introduced to close off, after schemes like the old "home loan" trust tried it — it either falls back into gift-with-reservation, or triggers an ongoing income tax charge instead. A genuine sale at full value, with no benefit kept afterwards, isn't a special scheme — it's just an ordinary sale, covered by Selling a home and Lifetime gifting for the proceeds.

No — everything in this app is about Inheritance Tax specifically. Capital Gains Tax (CGT) is a completely different, separate tax: it's charged on a GAIN someone makes while ALIVE, when they sell or give away an asset that's grown in value, and it's paid by them personally, not by the estate. The two taxes can interact around the same event (most obviously lifetime gifting), which is exactly why it's easy to plan for one and get caught out by the other. One genuinely useful fact ties them together, though: dying doesn't trigger Capital Gains Tax at all — assets get a tax-free "uplift" to their market value on death, which wipes out any gain that had built up during your lifetime. That's a real, deliberate reason "just hold onto it" can beat "gift it now" for something that's grown a lot in value, even before weighing up the 7-year Inheritance Tax rule.

It can, for the giver, at the point of gifting — separate from, and unaffected by, the 7-year Inheritance Tax rule that applies to the same gift. A gift is treated as a "disposal" at the asset's full market value on the day you give it away, and if that's more than you originally paid for it, the gain can be taxable, exactly as if you'd sold it. What's actually exposed to this: investments held outside an ISA, a second home or other property that isn't your main residence, business assets, agricultural land, and personal possessions worth more than £6,000. What generally isn't: cash, ISA and pension-wrapped investments, your main home (Private Residence Relief), an ordinary car, and — importantly — anything given to a spouse or civil partner, which happens at no gain/no loss regardless of value. Gifting a genuine trading business or farm can often use "Gift Hold-over Relief" to defer the Capital Gains Tax rather than pay it immediately. This tool flags an asset with a ⚠ warning once you've set up a lifetime gift for it and it looks like this could apply — but it doesn't calculate the actual figure, since that needs what you originally paid for it, which isn't something this app tracks.

Not straightforwardly, and there's a specific trap worth knowing if the plan involves selling UK assets around the move. Selling something to raise money for the move is a disposal like any other, so ordinary Capital Gains Tax can apply before you've even left. And if you do become non-UK resident and sell an asset while away, there's a "temporary non-residence" anti-avoidance rule: leave for 5 years or less and later return to the UK, and gains made on assets you already owned before leaving can still be taxed as if you'd never left at all, in the tax year you come back. This is a completely separate question from the Inheritance Tax "tail" period covered under Move abroad above — clearing one doesn't clear the other, and both need checking with a cross-border tax adviser before relying on either.

The main everyday exemptions: your main home (Private Residence Relief, as long as it's genuinely been your only/main residence throughout ownership), cash and foreign currency held for personal use, ISAs and pensions, an ordinary car (specifically exempted as a "wasting asset", whatever it's worth), personal possessions ("chattels") sold for £6,000 or less each, UK government bonds (gilts), and anything given to a spouse or civil partner (no gain/no loss, regardless of value — the recipient inherits the original cost instead). Everyone also gets an annual tax-free allowance before Capital Gains Tax bites on anything else at all, though that allowance has been cut sharply in recent years — check the current figure on GOV.UK rather than assuming an older one still applies.

Business Relief (BR) can remove qualifying trading business assets from Inheritance Tax entirely. From 6 April 2026, this is changing: Business Relief and Agricultural Relief are combined into a single £1 million allowance of 100% relief per person; value above that only gets 50% relief (an effective 20% rate). Shares on the Alternative Investment Market (AIM) are affected even more — they lose 100% relief altogether and only get 50% relief, regardless of the £1m allowance.

Agricultural Relief (APR) can remove the agricultural value of qualifying farmland and farmhouses from Inheritance Tax, provided the land is actively farmed. From 6 April 2026 it shares the same combined £1 million 100%-relief allowance with Business Relief described above — larger farms and estates should plan around this cap rather than assuming unlimited 100% relief will continue.

A narrower, less-used relief for commercial woodland: it defers Inheritance Tax on the value of standing timber (not the underlying land) until the timber is eventually sold. In practice, woodland that also qualifies for Agricultural or Business Relief is usually better covered by those instead, since this one only defers rather than removes the tax. Mark a property asset's type as "Commercial woodland" and switch on the Woodlands relief strategy to model it.

A niche relief for buildings, land or objects of outstanding national heritage, scientific, historic or artistic interest — it defers tax indefinitely in exchange for formal undertakings with HMRC to maintain the asset and give the public reasonable access. Breaching those undertakings, or selling the asset, can trigger the deferred tax, so it genuinely needs a solicitor experienced in heritage property before relying on it. Flag a property or valuables asset as a heritage asset and switch on the Heritage property relief strategy to model it.

Under the current rules, most defined-contribution pension pots sit outside your estate for Inheritance Tax purposes and pass to whoever you've nominated (via an "expression of wish" with your provider), separate from your will. Because of this, many people deliberately spend down other assets first in retirement and leave pensions untouched for as long as possible.

From 6 April 2027, most unused pension funds and death benefits are due to be brought within the value of your estate for Inheritance Tax. This is a significant upcoming change to the "spend other assets first, leave the pension" strategy above — plans built around today's pension treatment should be revisited as that date approaches.

Yes — an ISA wrapper only shields investment growth from Income Tax and Capital Gains Tax during your lifetime. The full value is still part of your taxable estate on death, with one narrow exception: some AIM-listed shares held inside an ISA can separately qualify for Business Relief, in which case that specific relief applies, not any special "ISA exemption". A surviving spouse or civil partner can also inherit an equivalent additional ISA allowance (the "Additional Permitted Subscription"), but that's about preserving the ISA wrapper for them, not about avoiding Inheritance Tax.

A trust is a legal arrangement where assets are held by trustees for the benefit of named beneficiaries, separately from your personal estate. People use trusts to control when and how beneficiaries receive assets (e.g. not until a certain age), to provide for someone who can't manage money themselves, or as part of a wider Inheritance Tax strategy — but putting assets into most trusts is itself a taxable event and doesn't automatically avoid tax.

Most trusts used for estate planning fall under the "relevant property regime": there can be an entry charge when assets go in above the nil-rate band, then a periodic charge of up to 6% every 10 years the trust exists, and an exit charge when assets leave the trust. This makes trusts a genuine planning tool, not a simple way to sidestep tax — the ongoing charges need to be weighed against the benefit.

Yes. A gift to an individual is a Potentially Exempt Transfer (only taxed if you die within 7 years), but putting assets into most trusts is a "chargeable lifetime transfer" instead — any amount above your available nil-rate band is taxed immediately at 20% (half the standard death rate) when it goes in, not 7 years later. Die within 7 years and it's recalculated at the full death rate (with taper relief for years 3-7), with credit for the 20% already paid. This is already factored into the Trust structure strategy's "entry charge" figure.

No. Unmarried partners get no automatic Inheritance Tax spouse exemption, however long the relationship, and have no automatic right to inherit anything at all if there's no valid will (see intestacy below). If you're not married or in a civil partnership and want your partner provided for, a will is essential, not optional.

Without a valid will, your estate is distributed under fixed statutory intestacy rules, which vary between England & Wales, Scotland, and Northern Ireland. Broadly, a surviving spouse or civil partner and children have priority, in a fixed order and fixed shares set by law — not necessarily what you'd have chosen, and an unmarried partner typically receives nothing automatically. The exact figures involved are periodically updated by the government, so if this applies to you, it's worth checking the current rules for your specific nation rather than relying on a remembered figure.

Yes. Under the Inheritance (Provision for Family and Dependants) Act 1975, certain people — a spouse or civil partner, a former spouse who hasn't remarried, a child, someone treated as a child of the family, or someone who was financially dependent on you — can apply to the court for reasonable financial provision if they feel your will (or the intestacy rules) doesn't adequately provide for them. This is a completely separate issue from Inheritance Tax, and is one of the most common ways a will ends up contested.

No — many straightforward, lower-value estates qualify as "excepted estates" and don't need to submit a full IHT400 account, often needing only the probate application itself. This tool flags when an estate looks like it may qualify, based on tax due and the combined nil-rate bands, but the real HMRC conditions also depend on things like specified transfers, foreign assets and trust interests that aren't modelled here — check current HMRC guidance nearer the time rather than assuming.

A Deed of Variation lets your beneficiaries agree, within 2 years of your death, to redirect some or all of their inheritance — for example, passing it straight to their own children, or to charity — and have it treated for tax purposes as if you'd left it that way originally. It's a decision your family makes after your death, not something you can set up in advance, but it's worth knowing your executors and beneficiaries have this option.

An executor is the person (or people) you name in your will to carry out its instructions after you die — applying for probate, collecting in and valuing the estate, paying any debts and Inheritance Tax due, and then distributing what's left to your beneficiaries. It's a real job with real responsibility (and personal legal liability if it's done wrong), not just an honorary title, so choose someone willing and able to take it on — not just whoever feels like the "obvious" choice.

An executor must be 18 or over by the time they need to act (they can be named younger, but can't apply for probate until then), and there's no rule against also being a beneficiary — in fact a spouse or adult child acting as both is very common. You can name as many executors as you like in your will, but only up to 4 can be named on the actual grant of probate at once, so most people name 1–4 primary executors plus, ideally, at least one reserve in case a primary executor can't or won't act (through death, incapacity, or simply declining the role). Naming just one, with no backup, is a common and avoidable gap.

Your executors (or administrators, if there's no will) are responsible for paying any Inheritance Tax due, out of the estate, before most of the assets can be distributed. It's generally due within 6 months of the end of the month in which you died — after that, HMRC starts charging interest, even if probate is still being sorted out.

This is a genuinely common problem — much of an estate's value is often tied up in a house or business that can't easily be sold before probate is granted. Options include: some banks will release estate funds directly to HMRC before probate under a "Direct Payment Scheme"; tax on property, businesses and some other illiquid assets can often be paid in instalments over up to 10 years instead of as one lump sum; and life insurance written in trust can provide cash specifically earmarked for this purpose, since a trust payout doesn't have to wait for probate.

The 28 destinations covered by the Move abroad strategy, researched as of 2026 — each country's headline Inheritance Tax rate, what stands in for a UK-style "nil-rate band" (most have none, since most have no inheritance tax system at all to have a threshold within), whether the UK actually has an Inheritance Tax treaty with that country, and an official government source where one could be verified. Only 10 countries in the world have a real UK Inheritance Tax double-taxation convention at all (per HMRC IHTM27161: France, India, Ireland, Italy, Netherlands, Pakistan, South Africa, Sweden, Switzerland, USA) — everywhere else on this list falls back on the UK's weaker unilateral relief if double taxation ever arises, which is easy to overlook. A small number of sources below couldn't be independently verified against an official government page in this research pass (marked "Not independently verified") — treat those specifically with extra caution and confirm with a cross-border tax adviser before relying on them.

Less than it used to be. From 6 April 2025, the UK moved from a domicile-based system to a residence-based one for Inheritance Tax: broadly, whether your worldwide estate is exposed to UK IHT now depends on whether you're a "long-term UK resident" (roughly, resident in the UK for at least 10 of the last 20 tax years), rather than the older concept of domicile. If your circumstances involve time spent outside the UK, this is a real, fairly recent change worth checking against your specific situation.

Legacy Planner is a planning tool to help you understand your position and organise your information — it is not legal or financial advice, and the figures and rules above can change. For anything you intend to act on (writing or signing a will, setting up a trust, restructuring a business or property, or anything involving significant sums), speak to a qualified solicitor and, where relevant, a financial adviser or accountant who specialises in estate planning.