Death and taxes: Everything you need to know about UK Inheritance Tax


Inheritance tax is money taken from someone’s estate when they die. Currently, UK property is potentially subject to inheritance tax at 40%. This applies to property held by both by residents and non-residents. Even if gifted during lifetime, property may be subject to 20% tax.

However, a number of reliefs and exemptions are available that may reduce or even eliminate the tax charge.


On death

If you’re resident in the UK, you’ll be subject to IHT on your entire worldwide estate. Non-residents are only subject to IHT on UK property – this includes real estate.

If lifetime gifts were made in the seven years before death, the nil rate band of £325,000 should be available.

The nil rate band is currently set at £325,000 and resets every seven years. This means that gifts of property up to £325,000 can be made every seven years without IHT becoming due. However, if the donor dies within this seven-year period, IHT could retrospectively become due on a tapered scale (provided that whatever’s left of the donor ’s estate exceeds the band).

Assets left to spouses and civil partners are generally exempt from IHT. However, complications may arise where the transferee is not UK domiciled but the transferor was.

Reliefs from IHT of 100% or 50% may be available for relevant business property or agricultural property. Real estate held for the purposes of a trade may qualify for relief, but property held for investment purposes will not.

If the deceased’s estate does not exceed £2 million, an additional residential nil rate band of up to £100,000 may be available where a main residence is passed down to direct descendants.

Lifetime gifts

Outright lifetime gifts of property to individuals are exempt from IHT. Other lifetime gifts (for example payments made to a Trust) are subject to IHT at 20% to the extent that the value of the property exceeds the nil rate band.

Author: Ralph Mitchison, Global Real Estate & Construction Industry Leader

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