What you should learn about inheritance tax and the deliberate modifications

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Your help makes all of the distinction. Learn extra Inheritance tax is a matter many individuals don’t usually need to grapple with till a demise within the household.

But greedy the fundamentals of inheritance tax might be financially savvy, significantly with some modifications doubtlessly launched within the Autumn funds.

Reme Holland, a monetary planning associate at accountancy agency Albert Goodman, notes the topic is constantly beneath scrutiny.

"Inheritance tax is a kind of areas that's at all times beneath the highlight, and it appears to be a preferred level of debate in the meanwhile," she explains.

Whereas awaiting the October/November funds bulletins, Ms Holland advises warning.

"We’ll see what occurs in October, November time, however I'd at all times say, don’t make any rash selections. Search recommendation first earlier than you do something."

Ms Holland explains inheritance tax, who could also be exempt from paying inheritance tax, what you'll have to pay tax on, and what modifications Chancellor Rachel Reeves might make to the tax.

How does inheritance tax at present work?

<img src="https://static.independent.co.uk/2025/08/29/11/28135925-3c31ac8c-176b-4ed8-a9fa-21eb087536a3.jpg" srcset="https://static.independent.co.uk/2025/08/29/11/28135925-3c31ac8c-176b-4ed8-a9fa-21eb087536a3.jpg?quality=75&width=320&auto=webp 320w, https://static.independent.co.uk/2025/08/29/11/28135925-3c31ac8c-176b-4ed8-a9fa-21eb087536a3.jpg?quality=75&width=640&auto=webp 640w" loading="lazy" alt="All you need to know about inheritance tax and how to prepare for potential changes to the rules (Alamy/PA)" class="sc-1mc30lb-0 ggpMaE inline-gallery-btn"/> open picture in gallery

All you should learn about inheritance tax and the way to put together for potential modifications to the principles (Alamy/PA) “Each particular person has a 0 price band of £325,000, which implies you possibly can have belongings value as much as £325,000 and never be accountable for any inheritance tax (IHT),” explains Holland.

It’s solely on belongings that exceed this that you must pay inheritance tax, which, as customary, is 40 per cent over the brink.

Are there any exemptions?

<img src="https://static.independent.co.uk/s3fs-public/thumbnails/image/2012/09/18/19/rings.jpg" srcset="https://static.independent.co.uk/s3fs-public/thumbnails/image/2012/09/18/19/rings.jpg?quality=75&width=320&auto=webp 320w, https://static.independent.co.uk/s3fs-public/thumbnails/image/2012/09/18/19/rings.jpg?quality=75&width=640&auto=webp 640w" loading="lazy" alt="Being married or in a civil partnership can mean one partner can leave everything to the other, and no inheritance tax would be due" class="sc-1mc30lb-0 ggpMaE inline-gallery-btn"/> open picture in gallery

Being married or in a civil partnership can imply one associate can depart the whole lot to the opposite, and no inheritance tax can be due Sure, significantly should you’re married or in a civil partnership. “A spousal exemption implies that a husband and spouse [for instance] might depart the whole lot to one another, and no inheritance tax can be due,” says Holland.

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“It might solely be due on the second demise, at which level each these allowances [of £325,000] might be mixed.”

Different exemptions embody “enterprise property reduction and agricultural property reduction should you’re in farms and estates” and for these leaving their property to a charity or a group newbie sports activities membership.

“There may be one other exemption referred to as the primary residence nil price band, which is an extra £175,000 every for married {couples},” provides Holland. “One of many situations for having that additional allowance is the property must be left to direct linear descendants, so youngsters and grandchildren.”

What about presents?

<img src="https://static.independent.co.uk/s3fs-public/thumbnails/image/2019/05/14/15/istock-1034620012.jpg" srcset="https://static.independent.co.uk/s3fs-public/thumbnails/image/2019/05/14/15/istock-1034620012.jpg?quality=75&width=320&auto=webp 320w, https://static.independent.co.uk/s3fs-public/thumbnails/image/2019/05/14/15/istock-1034620012.jpg?quality=75&width=640&auto=webp 640w" loading="lazy" alt="A gift can include jewellery" class="sc-1mc30lb-0 ggpMaE inline-gallery-btn"/> open picture in gallery

A present can embody jewelry (Getty Photos/iStockphoto) Gifting is the place issues get extra sophisticated. “In most circumstances, there isn't a inheritance tax due on the worth of presents given seven or extra years earlier than you die.

Nonetheless, should you die inside seven years of gifting cash or one other asset out of your property, then your family members might need to pay inheritance on the worth of these presents,” explains Claire Exley, head of economic recommendation and steering at Nutmeg.

“How a lot, will rely on whenever you gifted the asset and its worth.”

That is the inheritance tax reduction taper. “Should you die inside three years of gifting cash or belongings, the IHT price will likely be 40 per cent, this price decreases every year, finally reaching 0 per cent should you survive for seven years,” says Exley.

There are guidelines about how a lot you possibly can reward too – round £3,000 in a single tax 12 months, with as many smaller presents, as much as £250 per individual, additionally allowed. Birthday and Christmas presents are exempt.

Additionally, you possibly can’t request presents again. “If you're making a present, you should give it completely and never retain any profit,” says Holland.

What two potential modifications are being proposed?

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Chancellor Rachel Reeves is reportedly altering inheritance tax legal guidelines (Oliver McVeigh/PA) “One of many issues the federal government has mooted over the summer season is placing a cap on how a lot might be gifted, and that cap might be someplace between £100,000 and £200,000,” says Holland.

The second change the Authorities has talked about is eradicating the taper. “So should you died at any level throughout these seven years, the complete 40 per cent IHT can be chargeable on the worth of that reward,” notes Holland.

What might this imply for people?

“Within the grand scheme of issues, these two modifications to the worth of lifetime presents would have an effect on these on the excessive finish of wealth. The on a regular basis individual wouldn’t be impacted by a lifetime cap on presents,” reassures Holland.

“Nonetheless, should you couple these with among the modifications which might be presumably coming into impact over the subsequent two years, such because the remedy of pensions, and likewise, should you’re a enterprise proprietor, it then may begin to have an effect on extra folks.”

What are you able to do to arrange?

<img src="https://static.independent.co.uk/2025/05/09/10/09093202-7767232c-c097-4e66-87e3-69c415beab7f.jpg" srcset="https://static.independent.co.uk/2025/05/09/10/09093202-7767232c-c097-4e66-87e3-69c415beab7f.jpg?quality=75&width=320&auto=webp 320w, https://static.independent.co.uk/2025/05/09/10/09093202-7767232c-c097-4e66-87e3-69c415beab7f.jpg?quality=75&width=640&auto=webp 640w" loading="lazy" alt="Holland recommends looking at your finances and speaking to an independent advisor so you’re informed about your options" class="sc-1mc30lb-0 ggpMaE inline-gallery-btn"/> open picture in gallery

Holland recommends your funds and chatting with an impartial advisor so that you’re knowledgeable about your choices (Alamy/PA) Holland recommends your funds and chatting with an impartial advisor so that you’re knowledgeable about your choices and may determine “whether or not there’s any scope to make use of surplus belongings to make presents” earlier.

“If there may be going to be an inheritance tax, and also you need to retain a household house, you may take a look at an insurance coverage coverage to pay the associated fee,” he provides. “You may need to ask your youngsters, in the event that they’re beneficiaries, to pay the price of the insurance coverage moderately than your self.”

He additionally suggests reviewing your will to verify it “precisely displays your belongings”.

Exley says you possibly can contemplate making common funds to family members too. “There isn't any restrict to the worth of normal funds you can also make to a different individual, for instance should you’re serving to with their residing prices,” she notes.

“These are often known as ‘regular expenditure out of earnings’, nevertheless it might embody issues like paying lease or a mortgage on your baby, contributing to a financial savings account or Junior ISA for a kid beneath 18 or offering monetary help to an older relative, maybe to assist with care prices.”

Don’t neglect to dwell your life

“A very powerful factor is taking care of your self, ensuring you’ve obtained sufficient cash and belongings to do all of these belongings you wished to do.

“I respect wanting to assist household, however don’t compromise by yourself retirement since you’re making an attempt to beat a tax – life’s for residing,” says Holland. “Take pleasure in your cash. You’ve labored actually onerous for it.”