Inheritance Tax

Advice  |   16 January 2023

Written by
Anthony Macey, Partner

Inheritance tax (IHT) is payable on the value of your assets (known as your estate) over the current threshold known as the “nil rate band” (which is £325,000 per person) at a rate of 40%. The chancellor Jeremy Hunt has frozen this allowance for a further 2 years until April 2028, after Rishi Sunak when he was chancellor had
previously announced it would remain unchanged until April 2026.

The government collected £6.1bn in IHT for the 2021-2022 financial year, a 14% increase from the year before. The figure for this year already looks set to breach that, and the Office for Budget Responsibility thinks collections for this unpopular tax could reach £8.3bn by 2026.

Hunt’s announcement means that it has been nearly ten years since there was a change to the IHT allowance. It has remained the same since 2009; following the latest freeze 10,000 more families could be dragged over the threshold. For this reason, it is even more important to plan carefully in order to avoid or minimise IHT bills to ensure more of your money is passed on to your family and chosen beneficiaries rather than in tax.

What can be done?

There are a number of options available to you to minimize the level of tax due on death or to assist your beneficiaries. A few of the key considerations are as follows:

• Make a will

Without one, your estate will pass under a set of pre-determined rules called the ‘Intestacy Rules’. This may mean that

your estate does not pass to the people that you wish to benefit and can mean that more tax is paid then needed.

Depending on personal and financial circumstances a well-prepared will can make use of all allowances available to

you, provide protection of assets and ensure that your wishes are carried out at the same time.

• Main Residence

For those with a main residence, you may qualify for an additional £175,000 per person against the value of your home.

This is dependent on you passing your main residence to a direct descendent and if your estate is more than £2 million

then this is tapered by £1 for every £2 above this amount down to an allowance of £0.

• Spouses

Gifts and transfers between spouses are exempt. While same sex marriages benefit from this, common law partners

do not.

• Annual Allowances

You can gift up to £3,000 tax-free a year. Any unused allowances from the previous year can also be used increasing

this to a potential £6,000 (this can only be carried back one year).

In addition, you can make gifts of up to £5,000 to children and £2,500 to grandchildren made in advance of a wedding.

• Gifts out of surplus income

If you have a large income from pension and investments, and your regular expenditure is less than you make further

gifts of this surplus income if made on a regular basis. This needs to be well planned so that this exemption can be

claimed when you die, and advice should be taken.

• Gifts during your lifetime

Gifting away assets during your lifetime can be a useful way of reducing the value of your estate however care must be

taken as some gifts are subject to a lifetime charge of 20% and all gifts will remain within your estate for inheritance

tax purposes for seven years, although there may be some relief available between years three and seven.

Inheritance tax

• Gifts to charities

Any gifts left to charity are free of inheritance tax. Also, should you gift 10% or more of your total estate to charity, the

inheritance tax charge on your remaining estate will decrease from the standard 40% to 36%.

• Trusts

If you have sufficient capital, then you can make a larger gift into a trust. Placing assets into a trust is a way of

removing assets from your estate without losing control while ultimately providing capital and/or income to your

beneficiaries. There are a number of trusts available each with different rules and structures to cover your individual

needs (for example if you require some form of access to the capital or an income), however this is a complex area and

advice should be sought before proceeding with this form of inheritance tax planning.

• Pensions

Whilst pensions are traditionally thought of as a retirement funding product, after recent changes to legislation these

have become a key component of inheritance tax planning as some pensions do not form part of your estate for

Inheritance Tax purposes.

You can nominate beneficiaries who you would like to receive the funds and they are able to access them from any age

after your passing. If you pass away before age 75, all income they draw will be free of income tax, however if you pass

away after age 75 then the beneficiary will be subject to income tax at their marginal rate of tax for any income drawn.

• Choosing the right investments

There are a number of investments which come with IHT benefits by attracting Business Relief. Business relief is a tax

relief that enables certain business assets to benefit from either 50% or 100% reduction in IHT after two years and if

still held on death. However, these are deemed high risk investments (hence they may qualify from IHT relief after two

years rather than the usual seven years). Some of the companies held on the London Stock Exchange’s AIM (previously

the Alternative Investment Market) will qualify from this type of relief.

• Buying an insurance policy

While this does not reduce the value of your estate, you are able to take out a life insurance policy that can provide a

lump sum to your beneficiaries on death to cover the inheritance tax due. This would need to be placed into trust to

ensure that it does not form part of your estate.


With the nil rate band frozen for another 6 years more families now than ever are becoming subject to inheritance tax. As seen above with careful planning and some forethought there are a number of options available to minimise or even eliminate this charge.

If you have any questions about this article or would like any further details on how we may be help reduce liability for IHT, please get in touch.

Anthony Macey at Thackray Williams on 020 8290 0440

Daniel Sugerman at Canaccord on 020 7523 4608

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.

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