Question 1

What is Inheritance Tax and who pays it?

Accepted Answer

Inheritance Tax (IHT) is a tax on the estate (property, money, and possessions) of someone who has died. The estate's personal representative (executor or administrator) is responsible for paying IHT before distributing the estate. Beneficiaries don't pay IHT themselves; it comes out of the estate. IHT is due within 6 months of the death.

Question 2

What is the nil-rate band?

Accepted Answer

The nil-rate band (NRB) is the threshold below which no IHT is charged. For 2026/27 it is £325,000. Anything above this is taxed at 40%. The NRB has been frozen at £325,000 since 2009 and is set to remain frozen until 2030. Unused NRB from a deceased spouse or civil partner can be transferred to the surviving partner, potentially doubling it to £650,000.

Question 3

What is the residence nil-rate band?

Accepted Answer

The residence nil-rate band (RNRB) is an additional allowance of £175,000 available when you leave your main home to direct descendants (children, grandchildren, stepchildren, adopted children). Combined with the standard NRB, this gives a potential tax-free threshold of £500,000 per person (or £1,000,000 for a married couple using both sets of allowances). The RNRB starts tapering away for estates worth more than £2,000,000.

Question 4

Can spouses pass assets free of IHT?

Accepted Answer

Yes. Transfers between spouses and civil partners are entirely exempt from IHT, regardless of the amount, provided the recipient is UK-domiciled. On the second death, any unused NRB and RNRB from the first death can be transferred to the surviving spouse, effectively doubling the combined threshold. This is why many married couples can pass up to £1,000,000 IHT-free if they own their home and leave it to children.

Question 5

What gifts are exempt from IHT?

Accepted Answer

Several gifts are exempt: the annual exemption (£3,000/year, plus any unused amount from the previous year); small gifts up to £250 per person per year; wedding gifts up to £5,000 (parent), £2,500 (grandparent or party to marriage), £1,000 (others); regular gifts from surplus income; gifts to charities, political parties, and national institutions. Larger gifts above these limits are "potentially exempt transfers" and are only fully free of IHT if the donor survives 7 years after making them.

Question 6

Does leaving money to charity reduce IHT?

Accepted Answer

Yes. Gifts to UK charities are exempt from IHT entirely. Additionally, if you leave at least 10% of your net estate to charity, the IHT rate on the remainder is reduced from 40% to 36%. The "net estate" for this calculation is the estate after deducting the nil-rate band. This reduced rate can sometimes make it tax-efficient to give more to charity.

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