Inheritance Tax Planning – How to get it Right

Inheritance tax can appear to be fairly simple in the way it is calculated; you add up the value of the taxable estate, take off the available nil rate bands, and then multiply by 40% to give you the tax.

But all is not what it seems, and this can be much more complicated than you think. Let us look at the steps:

“..add up the value of the taxable estate,..”

Most pensions are not subject to inheritance tax, but some can be: if you have transferred a pension when ill, or if you have a buyout plan, or if you have not made any expression of wish, money can pass into the estate and have to be added in.

If the estate owns a farm, or a woodland, or a private business, these may be excluded.

What about gifts you have made. Were they Potentially Exempt Transfers (PET), or Chargeable Lifetime Transfers (CLT)? PETs might be traced back up to 7 years, but CLTs and PETs in combination can go back nearly 14 years, so beware!

Alternatively you could have gifted from income, which would be exempt. However, beware investment withdrawals – they are often not income.

“..take off the nil rate bands,…”

The basic nil rate band (NRB) is £325,000, and a deceased spouse’s NRB can be transferred to your credit. But what if you were divorced and remarried – which spouse gets the NRB?

What if a payment was made to a trust?

And what if you’re childless? The residence nil rate band only applies if you have children.

“…then multiply by 40% to give you the tax.”

So the rate is 40%? Unless you get taper relief. Or you have already paid 20%. Or you give 10% of the estate to charity.


This is not simple. Don’t rely on internet calculators or free guidance pages – get qualified, experienced advice. Make sure you get it right.

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