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Inheritance Tax Explored and Explained

Tue, 03 Feb 2026 10:46:42 GMT

IHT Allowances

Nil Rate Band (NRB)

Each individual, regardless of whether they are a long-term UK resident or not, will be entitled to an IHT allowance known as the NRB. Currently the NRB is a maximum of £325,000 and this threshold has been frozen until April 2030. If a death occurs and the deceased’s estate value falls within their available NRB, IHT will not be payable. Sometimes the NRB is referred to as a tax-free allowance, although technically the NRB isn’t tax free but carries with it a tax rate of 0%.

The NRB isn’t just applicable for transfers on death; the NRB can also apply when it comes to lifetime gifts such as transfers into trust (Chargeable Lifetime Transfers) or failed transfers to other individuals (Potentially Exempt Transfers).

With Chargeable Lifetime Transfers the NRB is utilised straight away, and if more than the available NRB is transferred to trust within a 7-year period, then a charge to IHT will be triggered on the excess value.

Whereas with Potentially Exempt Transfers, IHT is only triggered if the donor does not survive the 7-year period following death and the amount gifted exceeds the NRB.

As a result, there may be instances where a deceased’s estate value falls within the £325,000 threshold, but the deceased’s NRB had already been used on gifts made within 7 years of death resulting in IHT being payable on the estate.

One of the responsibilities of the executors is to establish how much of the NRB is available to the estate so the IHT position can be known.

Residence Nil Rate Band (RNRB)

In 2017 an additional IHT allowance was introduced called the RNRB. The maximum amount that can be claimed is up to £175,000 or capped at the value of the property being used for the claim if the value is lower. The RNRB threshold has also been frozen until April 2030.

Unlike the NRB, not everyone is entitled to an RNRB allowance. The IHTA 1984 details who is entitled to the allowance and how much allowance can be claimed based on the circumstances of the individual estate.

There is set criterion that need to be satisfied in order to make the claim and broadly they are detailed below:

The estate comprises of a property (or share thereof) that had been occupied by the deceased at some point during their ownership period;
The deceased was survived by at least 1 lineal descendant (e.g., a child, grandchild etc); and
The property (of share) was closely inherited by a lineal descendant (either outright or via a qualifying trust).

This criterion does narrow the pool of entitled estates, particularly if the deceased did not have children or their will directs their property to non-lineal descendants.

There are also exceptions and considerations to the rules established above that can broaden or restrict those who may or may not have been entitled to the allowance.

Downsizing

If the deceased ceased to own a property either through gifting or sale on or after the 8th July 2015, and the rest of their estate is closely inherited by a lineal descendant, their executor may still make a claim for the RNRB. The amount that can be claimed can only be the value that could have been claimed if the property had remained a part of the estate on death.

The RNRB Taper

Under the IHTA 1984, if the value of an estate exceeds £2 million, the amount of available RNRB allowance will begin to taper by £1 for every £2 that the estate is over the £2 million threshold. Therefore, if an estate value reaches £2.35 million, the full £175k allowance would be tapered completely.

This can be a concern for estates that are of significant value, particularly if they comprise of IHT-free assets such as agricultural or business relievable assets. There is also a concern where wills are written to leave the entire estate to the survivor on death as the surviving spouse’s estate is often doubled in value after first death, placing the survivor at higher risk of reaching the £2 million taper threshold.

IHT Exemptions

Spousal Exemption

Transfers on death (also in lifetime) to a spouse or registered civil partner will be exempt from IHT under spousal exemption rules, as per s.18 IHTA 1984. This also applies to transfers between non-long-term residents for the purposes of UK IHT.

There is special consideration for transfers between a long-term UK resident and a non-long-term UK resident and the maximum amount that can be claimed by the UK long-term UK resident is the maximum of £325,000. It is advisable for these clients to seek advice and careful restructuring of their wills may be required.

Charitable Exemption

Similarly to transfers between spouses and civil partners, transfers to a UK qualifying charity will benefit from an exemption from UK IHT as under s.23 IHTA 1984.

This exemption can be useful if an individual wishes to leave part of their estate to charity and the amount being gifted reduces the taxable estate to the value of the IHT allowances.

Reduced Rate of IHT

If on death at least 10% of the net chargeable estate is left to a qualifying charity, the estate can claim a reduced rate of IHT. The rate is reduced from 40% to 36% for the value of estate that exceeds the IHT allowances.

However, to claim this reduction it isn’t as simple as stating that 10% of the estate is to go to charity. There is a calculation that has to be done to assess whether this is available. HMRC have a calculator that can be used but of course there could be changes in the estate which could affect this calculation.

Conclusion

As this article has shown, the IHT position of an estate is the result of a combination of lifetime gifting, ownership of assets, legislative changes and the way a client’s planning has been structured. The availability of the allowances and reliefs covered is dependent on satisfying strict conditions and what might seem like insignificant changes in circumstances can have significant implications for IHT.

Upcoming changes in April 2026 to Business Relief and Agricultural Relief as well as the proposed changes to Inheritance Tax on unspent Pension Pots will further impact a number of clients moving forward.

Incorrect or incomplete planning can result in allowances being lost entirely, estates falling unexpectedly within the scope of IHT, or beneficiaries receiving substantially less than intended. This is particularly relevant given the frozen thresholds and the increasing property values. Without careful consideration, even estates comprising largely of IHT-exempt assets may trigger a higher tax liability on second death.

It is therefore evident that careful structuring of your death planning is crucial.

Why Trusts Are Useful in Estate Planning ...

Fri, 29 Aug 2025 16:18:24 GMT

When people think about planning for the future, they often focus on writing a will. But there’s another powerful tool that can help protect your assets and take care of your loved ones: a trust.

A trust is a legal arrangement where one person (called a trustee) holds and manages assets for someone else (called a beneficiary). You can create a trust during your lifetime or have it take effect after you pass away. While it might sound complicated, trusts can actually make things much simpler—and smoother—for your family.

Here are a few key reasons why trusts are so useful in estate planning:

1. Avoiding Probate
One of the biggest benefits of a trust is that it can help your family avoid probate—the court process of distributing a person’s assets after death. Probate can be time-consuming, expensive, and very public. Assets in a trust typically bypass this process, allowing for a faster and more private transfer.

2. More Control Over Your Assets
With a trust, you can set specific rules for how and when your assets are given to beneficiaries. For example, you might want your children to receive their inheritance in stages, or you may want to make sure money is used only for education or health expenses. A trust gives you that flexibility.

Should any of your beneficiaries’ divorce, trusts can help protect the assets that you leave behind for them, preventing them from being lost down a different bloodline.

For this reason, trusts are sometimes referred to as 'bloodline planning' as they can prevent children from getting disinherited should a surviving spouse remarry and be the first the pass away in the re-marriage. With the right estate planning, trusts can prevent the assets from disappearing down a different bloodline.

3. Protecting Loved Ones
Trusts can be especially helpful if you have young children, family members with special needs, or loved ones who may not be good with money. The trustee can manage the assets responsibly and distribute them according to your wishes.

4. Planning for Incapacity
If something happens and you’re unable to manage your own affairs due to illness or injury, a trust can ensure that someone you trust is already in place to step in and handle things. This can bring peace of mind and avoid court involvement.

5. Reducing Taxes
In some cases, trusts can help reduce inheritance tax and preserve more wealth for your beneficiaries. This is especially important for people with larger estates, though it's a good idea to talk to a professional to see what makes sense for your situation.

Trusts aren’t just for the wealthy—they’re for anyone who wants more control, privacy, and peace of mind when it comes to their estate. While it’s wise to consult a professional when setting one up, a trust can be one of the smartest moves you make to protect your legacy and help your family.

What is Probate?

Sat, 24 May 2025 11:44:56 GMT

What do I do when someone dies?

One of the first things that needs to happen is to register the person's death in addition to arranging the funeral of course.

Additionally, you may need to apply for probate to access the deceased's assets and deal with their estate.

A grant of probate is a legal document that's sometimes needed to access bank accounts, sell assets and settle debts after someone has died.

This document is only called a grant of probate if the person left a will. If they didn't leave a will, a grant of letters of administration is used instead. Both documents work in much the same way, giving a named person legal authority to deal with the estate of the person who died.

When probate has been granted, the next of kin or the executor can start to deal with the deceased person’s assets. If there was a will, this sets out how the assets should be distributed. If the person died without a will the law determines who should receive everything.

Before applying for probate, it's important to check:

that probate is needed
that you’re eligible to apply
whether there’s Inheritance Tax to pay

Do refer to this link to establish if probate is needed for a particular estate: - https://www.gov.uk/applying-for-probate

If probate is needed, it's possible to deal with probate yourself, providing you're familiar with the legal process and confident completing all the required tasks. Applying for probate is time consuming and the work involved can be complex. It's important to understand that dealing with probate yourself also carries a level of risk, because you can be held personally financially liable if you make any mistakes.

For these reasons, many people prefer the route of passing this work to a probate specialist to carry out this work for them. Before you decide if you want to deal with probate yourself, you should think carefully about whether you have the time, energy and skill set to carry out this work.

If you'd like to learn more about this, email natascha@rocheestateplanning.com.

Do you have your Power of Attorney in place?

Thu, 24 Apr 2025 16:00:21 GMT

What is the purpose of a Power of Attorney?

You may have heard Martin Lewis advocating the importance of Power of Attorney, particularly Lasting Power of Attorney (LPA). So what are they exactly and why do we need them?

A Power of Attorney (PoA) is a legal document that gives someone you trust the authority to act on your behalf if you’re no longer able to make decisions yourself. In the UK, it’s a crucial step in planning for the future, especially when considering potential illness, injury, or old age.

There are different types of PoA in the UK. The most common is the Lasting Power of Attorney (LPA) , which comes in two forms: one for property and financial affairs , and another for health and welfare . These must be registered with the Office of the Public Guardian to be valid.

Having a PoA in place offers peace of mind. Without one, if you become mentally incapacitated, your loved ones may face a long, expensive process to apply to the Court of Protection to manage your affairs. This can be emotionally and financially draining at an already difficult time.

The health and welfare LPA becomes especially important if you lose mental capacity. It allows your chosen attorney to make critical decisions about your care, treatment, and even life-sustaining medical choices. Without it, healthcare professionals or social services may make those decisions without input from your family.

Setting up a PoA is not just for the elderly. Accidents or unexpected illness can happen at any age. Establishing one early ensures your affairs are managed the way you would want, by someone you trust, if the unexpected occurs.

Presently, it takes around 20 weeks for the Office of The Public Guardian to register Powers of Attorney.

In short, a Power of Attorney is about control, security, and reducing the burden on loved ones. It’s a simple yet powerful tool that protects your interests and ensures your voice is heard, even if you can’t speak for yourself.

Inheritance Tax hits record £7.5 billion!

Fri, 26 Apr 2024 10:27:53 GMT

Inheritance Tax hits record £7.5 bln, escalating concerns over frozen thresholds

HM Revenue & Customs data has revealed that a record amount of £7.5billion in Inheritance Tax (IHT) was paid to the Treasury in the 2023/24 tax year.

Total receipts for April 2023 to March 2024 were £0.4billion greater than the all-time high of £7.1billion in 2022/23, an increase of 5.6%

The Office for Budget Responsibility’s projection of IHT receipts reaching £9.7 billion by 2028/29, doubling as a percentage of GDP since 2009, is also a concern.

This surge in revenue, attributed mainly to asset price inflation and stagnant Inheritance Tax thresholds, signifies a substantial fiscal drag. As the freeze persists, the burden of IHT is poised to intensify, posing significant implications for taxpayers and estate planning alike.

Even without an exceptional transfer of wealth, more estates and more assets in each liable estate are being dragged over the threshold at which IHT kicks in as the value of financial assets and property increases. The modest property downturn of the last year or so, which missed some parts of the UK entirely, seems to be over – so with the residential nil-rate band also frozen at £175,000, the trend of families or individuals with modest levels of wealth mostly held in property being subject to this 40% tax will continue.

Increase in LPA registrations in 2023 – statistics reveal

Fri, 05 Apr 2024 10:54:37 GMT

Statistics from the Family Court reveal a notable surge in Lasting Power of Attorney (LPA) registrations in 2023, surpassing a million for the first time.

Today's media reports that "Statistics from the Family Court reveal a notable surge in Lasting Power of Attorney (LPA) registrations in 2023, surpassing a million for the first time."

The data, covering October to December 2023, indicates a 37% rise in registrations, credited to the aging demographic.

It's worth noting that even a straightforward LPA can take up to 20 weeks to establish. The significance of LPAs as crucial legal instruments, empowering individuals to appoint trusted representatives to act on their behalf when they lack mental capacity remains an essential part of Estate Planning.