Inheritance Tax

• What is the tax rate for inheritance tax (IHT)?

  40%
• What are the two types of lifetime transfers in inheritance tax?

  • Chargeable Lifetime Transfers (CLT)
  • Potentially Exempt Transfers (PET)
• When is a Chargeable Lifetime Transfer (CLT) taxed?

  It is taxed when made if it exceeds the nil rate band.
• What is the tax rate for a Chargeable Lifetime Transfer (CLT) above the nil rate band for trustees and individuals?

  20% for trustees and 25% for individuals.
• What additional tax is due if the transferor dies within 7 years of a CLT?

  An additional tax of 40% is due.
• What defines a Potentially Exempt Transfer (PET)?

  A PET is a lifetime transfer to individuals that is not immediately chargeable.
• Under what conditions is a PET charged to IHT?

  It is charged if it exceeds the nil rate band and the donor dies within 7 years of the transfer.
• What does being domiciled in the UK imply for IHT?

  IHT is payable regardless of where property is located.
• What does being not domiciled in the UK imply for IHT?

  IHT applies only to UK assets.
• How is a transfer without gratuitous intent treated for IHT?

  It is disregarded for IHT purposes.
• What is the "loss to donor rule" in calculating the value of a gift?

  It is the amount by which the gift diminishes the donor’s estate.
• How is the value of stock determined for IHT purposes?

  The value depends on the percentage of ownership of shares.
• What does the related property rule state?

  If the donor's spouse owns similar property, this is taken into account for valuation.
• What are the exemptions from paying IHT for gifts?

  • Gifts to spouses (unless not domiciled in the UK, then only first £325k exempt)
  • Gifts to charities
  • Small gifts under £250
  • Wedding gifts:
  • Parent: up to £5,000
  • Grandparent: up to £2,500
  • Bride or groom: £2,500
  • Others: £1,000
• What is the nil rate band for IHT?

  £325,000
• What is the annual exemption for IHT?

  £3,000
• How can the annual exemption be used in subsequent years?

  It may be carried forward and used in the next year only.
• What happens if the donor of a PET dies within 7 years of the transfer?

  The transfer becomes chargeable to IHT, and the recipient is liable to pay.
• When are Chargeable Lifetime Transfers (CLT) taxed?

  They are taxed immediately upon transfer.
• How is the annual exemption applied to CLTs?

  The annual exemption reduces the amount subject to IHT.
• What should be checked when calculating leftover nil rate band for CLT or failed PET?

  Check for other chargeable transfers made within the previous 7 years.
• What happens if IHT was paid on earlier gifts?

  The amount of tax paid is added to the current calculation.
• How is IHT calculated if the donor dies within 7 years of making a PET?


  Apply the nil rate band and IHT rates in force at the date of death.
• What is the process for calculating the nil rate band remaining after a PET?

  Deduct any chargeable transfers made in the 7 years before the PET.
• What is taper relief and when does it apply?

  Taper relief reduces the tax owed by 20% for each year after 3 years from death.
• What are the reductions in IHT due to taper relief based on the time of transfer before death?

  0% for less than 3 years, 20% for 3-4 years, 40% for 4-5 years, 60% for 5-6 years, and 80% for 6-7 years.
• What are the IHT reliefs and exemptions available?

  • Gifts to spouses (restricted to £325k if not UK domiciled)
  • Gifts to charities (if more than 10% of baseline amount, IHT reduced to 36%)
  • Business property relief (100% or 50% depending on conditions)
  • Agricultural relief (100% for agricultural property)
• What is business property relief?

  It reduces the value of business property given as a lifetime gift to a trust.
• What qualifies for 100% business property relief?

  Sole trader business or partnership, or shares in an unlisted trading company. Must own business for at least 2 years before death
• What qualifies for 50% business property relief?


  Land, buildings, plant or machinery used by a partnership or company, or shares in a quoted trading company if the donor has more than 50% of the voting shares. Must own business for at least 2 years before death.
• What is agricultural relief?

  It provides 100% relief for the transfer of agricultural property to a trust during life or at death.
• What qualifies as agricultural property for relief?

  Land and buildings used for agriculture in the UK, Channel Islands, Isle of Man, or European Economic Area.
• What is included in the death estate?

  All property beneficially entitled to, including property outside the UK, cash, and chattels.
• How is the value of the estate determined at death?

  It is treated as a chargeable transfer equal to the net value of assets at the date of death.
• What deductions are made when working out the value of assets at death?

  Deduct funeral expenses and debt/liabilities.
• How is the nil rate band adjusted at the time of death?

  It is reduced by the amount of PETs and CLTs made in the past 7 years.
• What happens to the remaining nil rate band after deductions?

  It is deducted from the net amount of the estate before charging 40% IHT.
• What is transferable nil rate band?

  If a spouse did not use all their nil rate band when they died, the unused proportion can be transferred to uplift the remaining nil rate band.
• What is the residence nil rate band?

  It applies to death estates that include a private residence left to lineal descendants.
• What is the limit for the residence nil rate band?

  Up to £175,000, added to the normal nil rate band of £325,000.