Who pays IHT?

Inheritance Tax Thresholds, Rates, and Who Pays. What You Need to Know

Inheritance Tax (IHT) is often seen as a tax on hard-earned family wealth, but with the right knowledge and planning, much of it can be avoided or reduced. At Just Wills and Legal Services (JWALS), we specialise in helping individuals and families protect their estates and ensure their loved ones receive the inheritance they intend.

In this guide, we break down the current Inheritance Tax thresholds, who is responsible for paying, and how you can plan ahead to minimise your exposure.

What Is Inheritance Tax?

Inheritance Tax is a tax that may be payable on your estate, your money, property, and possessions, when you pass away. In some cases, it also applies to gifts made during your lifetime.

Not all estates pay IHT. Whether or not tax is due depends on the total value of your estate and who you leave it to.

The Nil-Rate Band: £325,000

Everyone has a tax-free threshold called the nil-rate band, which is currently set at £325,000. This means the first £325,000 of your estate is free from Inheritance Tax.

If your estate is worth more than this, the portion above the threshold is usually taxed at 40%.

The Residential Nil-Rate Band: Up to £175,000

If you leave your main residence to a direct descendant (such as a child or grandchild), you may qualify for an additional residence nil-rate band (RNRB) of up to £175,000.

Combined with the standard nil-rate band, this means many individuals can pass on up to £500,000 tax-free, or £1 million for married couples or civil partners.

Learn more: What is the Residential Nil Rate Band? FIND OUT MORE

Who Pays Inheritance Tax?

Inheritance Tax is usually paid by the executor or administrator of the estate, using funds from the estate itself. It must typically be paid within six months of the date of death. Interest is charged on late payments.

If you give away large gifts during your lifetime and die within seven years, your beneficiaries may also be liable for IHT on those gifts. (Read more about the seven-year rule here).

Inheritance Tax Rates

Here’s how the tax is usually applied:

• 0% on the first £325,000 (nil-rate band)

• 0% on up to £175,000 more if passing your home to direct descendants (RNRB)

• 40% on the rest of the estate above those thresholds

If you leave 10% or more of your estate to charity, the rate on the remaining taxable estate may be reduced to 36%.

What If You’re Married or in a Civil Partnership?

Married couples and civil partners can pass any unused allowance to their spouse, effectively doubling their tax-free threshold.

So, even if one partner leaves everything to the other tax-free, when the second partner dies, their estate can benefit from:

• £325,000 + £325,000 = £650,000 nil-rate band
  

• Plus up to £350,000 combined residential nil-rate band
  → Total potential tax-free estate: £1 million
  

When Inheritance Tax Doesn’t Apply

IHT doesn’t apply if:

• You leave everything to a spouse or civil partner
  

• You leave your estate to a charity
  

• Your estate is below the £325,000 threshold
  

• You leave your home to children or grandchildren, qualifying for the additional residence allowance

Planning Ahead: How to Reduce or Avoid Inheritance Tax

At JWALS, we help clients use legitimate strategies to reduce IHT, such as:

• Gifting during your lifetime
  

• Using trusts to remove assets from your estate

• Setting up a tax-efficient Will
  

• Taking advantage of allowances and exemptions
  

• Exploring life insurance options written in trust

The key is early planning and the right advice.

Take Action with JWALS

Inheritance Tax doesn’t have to catch your family off guard. With proactive estate planning, you can make the most of your allowances, reduce your tax exposure, and protect the wealth you’ve worked hard to build.

Call us today on 01342 477102
Email: [email protected]
Visit: www.justwillsandlegalservices.co.uk