Allowances & rates: Inheritance Tax

What are the current rates and allowances for Inheritance Tax (IHT)?

This is a freeview 'At a glance' guide to Inheritance Tax (IHT) rates and allowances.

Tax is payable within six months of the end of the month of death e.g. a death in December 2021 will mean the IHT must be paid by 30 June 2022. 

See: Estate planning checklist

At a glance

Rates & Allowances

• Finance Act 2021 provides that the nil rate band will remain at £325,000 until April 2026. Finance Act 2023 provides for this to be extended to April 2028. The nil rate band is transferable between spouses and civil partners. See IHT: Transferable Nil Rate Band
• The Residence Nil Rate Band will remain at £175,000, also until April 2028, with tapering to continue to start at £2 million. This is transferable between spouses and civil partners. See IHT: Residence Nil Rate Band.

Offshore trusts and settlors

• Finance Act 2020 amends the legislation in respect of offshore trusts, property added to trusts by UK-domiciled or deemed domiciled individuals is no longer excluded property for IHT. See Non-domicile status, deemed domicile & tax and Non-resident trusts.

Non-domiciled individuals 

A non-UK domiciled individual is exempt from IHT on non-UK assets unless a spousal election has been made.

• Individuals may be deemed to be UK domiciled for IHT purposes. This may be due to being: 
  • Domiciled in the UK at any time in the three years immediately preceding the time at which the question of domicile arises.
  • UK-born, with a UK domicile of origin and UK resident for at least 15 years in the past 20 years. 
• The estate of a foreign domiciliary may be excepted, which means that there are no IHT reporting requirements to HMRC. This should be the case provided they died abroad, they have never held a UK domicile and the UK assets in their estate, passing by will or survivorship, are shares or cash with a death value of less than £150,000 (£250,000 for deaths after 1 January 2022). A full IHT account is required if:
  
  • The estate contains overseas property which has value attributable to UK residential property.
  • Chargeable gifts of over £3,000 were made in the seven years prior to death.
• See Non-domicile status, deemed domicile & tax and IHT: Gifts

Spouses and civil partners

Lifetime and death transfers between UK-domiciled spouses/civil partners are exempt from IHT. Any proportion of unused nil-rate band of the first spouse to die may be carried forward and added to that of the second spouse. See Transferable Nil rate band.

See IHT: Gifts

Charitable donations

If a donation of at least 10% of the net value of the estate is made to charity the IHT rate decreases to 36%. The charity concerned will receive more if a donor is able to donate under the Gift Aid scheme whilst alive because the charity will be able to receive a basic rate tax credit. See IHT discount on charitable donations.

Business Property Relief (BPR) and Agricultural Property Relief (APR)

BPR

 * Relevant business property must usually have been owned for at least two years prior to transfer/death.

APR (either 100% or 50%)

Given on the agricultural value of agricultural property which has been:

• Occupied by the owner for the purposes of agriculture for two years ending with the date of the transfer (death).
• Owned by them for seven years ending with that date and occupied throughout by them or another for the purposes of agriculture.

For further details see: the Private Client section for IHT: Business Property Relief and IHT: Agricultural Property Relief.

Exempt gifts

Certain gifts are exempt from IHT including those within the £3,000 annual exemption, small gifts of £250 per person per tax year and certain gifts on marriage.

See IHT: Gifts

Potentially Exempt Transfers (PETs)

Other gifts are taxable if the transferor dies within seven years of making the gift with a reduced charge (taper relief) if they survive at least three years.   

See IHT: Gifts