GUIDE TO

INHERITANCE
TAX
Pass more of your
wealth on to loved ones
IMPORTANT INFORMATION
We’ve written this guide to give you useful information about inheritance tax, but it
isn’t personal advice. Its purpose is to highlight areas you might like to discuss with
your adviser or investigate further. Where we mention married couples, this includes
registered civil partnerships.

You shouldn’t rely on it alone to make decisions. If you need personalised

recommendations, or aren’t sure if a particular investment is right for you, please ask
for advice.

Some of the pages and tools linked to in this guide are offered by our sister company
Hargreaves Lansdown Asset Management Ltd.

This guide was correct as at 11 June 2024, and all figures and tax information applies
to the 2024/25 tax year and relates to UK residents and domiciles. This applies to UK
tax law but we are not tax experts. Tax rules can change and their benefits depend on
your circumstances. If you need help with complex tax calculations you may wish to
seek advice from an accountant.

We’re Hargreaves Lansdown Advisory Services and we’re authorised & regulated by the
Financial Conduct Authority. Company registered in England and Wales No. 3509545.
TWO UNFORTUNATE CERTAINTIES
The only two certainties in life.

Death and taxes are often described as

the only two certainties in life, as gloomy
as it may sound. And inheritance tax (IHT)
means they can turn up at the same time.

There are plenty of ways to reduce or

remove IHT altogether. And dealing with it
earlier means you’re likely to be in a better
position later on.

To help you pass on more to your loved

ones, we’ve looked at some of the steps a
financial adviser would take.

We hope these steps help you put a plan

in place. But inheritance tax is a complex
area and it’s seriously worth considering
financial advice if you think you might
be impacted.

If you are unsure, or need advice, our

advisers can help. Just give us a call on
0117 317 1690.

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 HOW MUCH WILL YOU PAY?
The first step is to work out if you’ll be
affected by IHT.

And if you won’t, you don’t need the rest of

this guide.

The simplest way to check this is by using

our online calculator – it does all the work
for you. Although it doesn’t take into
account all personal circumstances.

You can find this at www.hl.co.uk/tools/

calculators/inheritance-tax-calculator

IF YOU’D RATHER CALCULATE IT

YOURSELF, HERE’S HOW.
First, work out the value of the assets that
allowance if you pass on your family home
you own, but don’t include your pensions.
to direct descendants. It is currently set at
You can make certain deductions from
£175,000. For any joint assets, just include
the overall value of your assets, such as
the value of your share.
some investments in small companies (for
example, those listed on the alternative
These rates are currently frozen until 2028
investment market, or AIM) and any debts
so be aware that an increase in the value
which have not already been deducted in
of your estate may push you over the
the table opposite.
threshold over time.
Once you’ve worked out the value of
If you’re married, you can combine your
your estate (your money, property and
thresholds if your spouse will inherit all
possessions), you can subtract the current
of your assets on your death. Similarly, if
IHT thresholds.
you’ve been widowed in the past you may
be able to claim the IHT thresholds which
You won’t pay inheritance tax on anything
were unused by your late spouse.
under £325,000*, known as the nil rate
band. Under normal circumstances, you’ll
*It may be reduced if you have made gifts
pay IHT at 40% on the value of your estate
within the seven years before your death.
over this amount. There is also an additional

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CALCULATE YOUR IHT LIABILITY
YOUR ASSET VALUE

Your home (after deduction of any mortgage) £

Any other properties (after deduction of any mortgage) £

Cash £

Investments £

Possessions £

Life insurance (where not in trust) £

Trust investments of which you’re a life tenant, established following

£
the death of another person
Total assets £

(minus 100% of the property value up to £175,000, or potentially up to £350,000

£
if you have been widowed*)
(minus £325,000 **) £

Total exposed to IHT £

*The value of the main residence nil less than £325,000 if you have made any
rate band threshold is only applicable if substantial gifts in the seven years before
your main residence is given to a direct your death.
descendant and will be reduced, or taken
Please note tax rules are subject to
away completely, if your total estate is
change and benefits depend on personal

%
valued above £2 million on your death.
circumstances. The exact amount of
tax payable will depend on your
**Add any additional nil rate band inherited
individual circumstances.
from a late spouse. The figure may be

The usual rate of

inheritance tax

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6
THE BASICS
Before you start reducing your potential IHT bill,
you need to have some basics in place.

1: DON’T PRIORITISE SAVING IHT OVER 3: SELECT YOUR ATTORNEY

YOUR OWN SECURITY You might become unable to manage your
For now, think of your own needs. You own affairs later in life. And making and
need to strike a balance between making registering a Lasting Power of Attorney
sure you have enough to live on and (LPA), to carry out your wishes during your
paying less tax. lifetime, can help. This must be in place
before you lose the capacity to make your
Things to consider: own decisions.
• What you’ll need for your lifetime
There are two types. One covers financial
• W
 hat your partner will need if you die
matters including property, and the other
before them
health and welfare decisions. Completing
• Inflation – rising prices will eat away an LPA doesn’t mean someone will
at the value of your savings immediately control your life, they must act
• 
The possibility and costs of long with your best interests in mind. They can
term care help you to pay bills or organise care. An
LPA can only come into effect when you
2: WRITE YOUR WILL specify or when capacity is lost.
Your will is the foundation of your IHT plan,
and legally binding. Writing a will means The benefit is you can choose who can
choosing who will benefit when the time act for you if the time comes. If you don’t
comes, as well as how and when. appoint an Attorney, your relatives will have
to apply to the Court of Protection if you
If you don’t write a valid will, your estate will lose the ability to make your own decisions.
be subject to intestacy laws, which will This can be a slow and expensive process.
determine who benefits. This could differ You wouldn’t be able to select your own
from your wishes. Attorney in this instance, or specify how
you’d like your affairs to be managed. The
Court would appoint an Attorney for you
and this might not be someone you would
have chosen yourself.

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SPENDING, GIFTING AND INVESTING
Three well-known ways to reduce IHT.

1. SPENDING TYPES OF GIFTS:

Spending your money will reduce the value
• E xempt gifts – these are IHT free
of your estate, and the amount of IHT you
immediately.
need to pay.
• Potentially exempt gifts – these may
become IHT free over time.
It’s an opportunity to spend some of your
• Chargeable gifts – these might result in
hard-earned cash on things you enjoy, like
an immediate IHT charge.
holidays, the theatre and eating out. But if
you buy expensive items like cars and art,
these will stay in your estate. Unless you
TAKE CARE WHEN
make a real change to your lifestyle, it’s
MAKING GIFTS YOU MIGHT:
unlikely that spending on its own will have
Lose control. You can’t take back
much impact on your IHT bill.
a gift or dictate what the recipient
will do with it. The gift becomes the
2. GIFTING
property of whoever you’re giving it
Money towards house deposits and
to, so you should consider whether
university fees are great ways to give your
they will be responsible with it.
loved ones a helping hand for their future.

Lose rights. You’ll no longer benefit

Gifts like this can reduce the size of your
from any income or capital gain from
estate and your potential IHT bill, though
the gift’s value.
there are rules.

You can delay someone receiving

the gift and stay in control by using
trusts. There’s more on this on
page 12.

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 EXEMPT GIFTS POTENTIALLY EXEMPT GIFTS
There are several ways you can make Outright gifts that don’t fall within one of
gifts free of IHT: the previous exemptions will usually be
IHT free, if you live for seven years or more
Marriage – married couples can transfer afterwards. There’s usually no limit to the
any assets between themselves during value of these gifts. If you don’t live for
their lifetime or on death. seven years after making the gift, the
portion exceeding the £325,000 threshold
Your annual exemption – each tax year will be taxed. The tax due is calculated on
you can gift up to £3,000 to anybody you a sliding scale based on the time between
like. You can also gift any unused allowance the gift and death. This is known as taper
from the previous year. relief. Please remember that tax rules
change and benefits will depend on your
Small gifts – you can gift anyone up to individual circumstances.
£250 each tax year, provided you haven’t
already given any gifts to the same person How taper relief works
during the same year which use one of the
other exemptions. Time between
IHT RATE
gift and death

From extra income – if you have extra Less than 3 years 40%
income (after tax) that you don’t need, you
can make regular gifts. You’ll need to keep 3 – 4 years 32%
a record of these. You can use form HMRC
4 – 5 years 24%
IHT403.
5 – 6 years 16%
For a wedding – you can give your children
up to £5,000 and grandchildren or great- 6 – 7 years 8%
grandchildren up to £2,500 when they get
married. You can give anyone else up More than 7 years 0%
to £1,000.

To charities or political parties – any The total amount of potentially exempt gifts
donations to these types of organisations, in the seven years before death which falls
either in your lifetime or in your will, are IHT within the value of the tax-free threshold
free. This includes property, shares and will reduce it accordingly, so more of your
land. If you leave at least 10% of your net assets will become taxable.
estate to charity in your will, the rate of
IHT reduces to 36%. If you can’t find a CHARGEABLE GIFTS
charity to meet your requirements, it’s A chargeable gift is one that doesn’t fall into
not complicated to set up your own the above categories, so it may be charged
charitable trust. to IHT immediately. Gifts to a discretionary
trust are the most common example.
The Charity Commission has some
simple guidance here:
www.gov.uk/setting-up-charity
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A charge is usually made if the total value INVESTING FOR CHILDREN
of gifts made in a seven year period Giving your children and grandchildren
exceeds the £325,000 threshold. a great start in life is usually high on the
priority list. And can be part of your IHT
Chargeable gift rules are complicated and plan too.
we recommend you ask for advice. You
can speak to our advisory helpdesk on Junior ISAs – you can add up to £9,000
0117 317 1690. each year to this tax-efficient account for
children under 18. There are two types; a
3. INVESTING Cash Junior ISA and a Stocks and Shares
Some investments offer IHT savings, but Junior ISA. Junior ISA’s are free from UK
they are also higher risk. income and capital gains tax. The child can
access the money in the JISA from their
BUSINESS RELIEF (BR) 18th birthday.
Certain companies qualify for 100% relief
from IHT, meaning there is no IHT to pay. Bare trusts – these are the simplest
You must have held the shares for at least type of trust. You can make a gift into
two years prior to your death to qualify. an investment account to create a trust.
Usually, it’s the child who is liable for any
Provided that it qualifies, you could pass tax. So in practice, there is rarely tax to pay.
on a family company, business, unquoted Although if this type of gift is made from
shares or AIM-listed shares on your death, a parent to a child and the gross income
without being subject to an IHT charge. exceeds £100 per year, all the income will
There’s no limit on the amount you be taxed as if it were the parent’s. But if
can transfer. you’re unsure, it’s always a good idea to
speak to an accountant.
All investments can go down as well as up
in value, though you have a greater chance Junior pensions – these are a great
of getting back less than you put in with BR starting point for a child’s future retirement.
companies. They are more volatile and risky You can add up to £2,880 to their pension
than investing in larger companies. each year and receive 20% tax relief from
the government, bringing the total amount
One of the ways you can benefit from BR to £3,600. This can grow free of UK tax.
is by investing in enterprise investment The child will only be able to access the
schemes (EIS). You can start to defer money from age 55 (57 from 2028) or later
capital gains tax too, if you’ve held them as pension rules do change.
for more than three years. They can also
provide income tax relief, of up to 30% on By adding money into these accounts
the first £1million invested each tax year. you’ll benefit from an IHT saving if the gift
is immediately exempt or if you survive
EIS companies are usually small companies seven years from the date of a potentially
looking to grow quickly, making them a exempt gift.
high risk investment. They’re usually illiquid,
which means you might not be able to cash
in when you want to.
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 TRUSTS AND PENSIONS
Two lesser-known IHT opportunities

TRUSTS By using a discretionary trust:

Trusts are usually used to save tax and 1. You, or other people you’ve appointed
keep control of assets. You pick the as trustees, are in control of the money
trustees (which can include yourself) who until the time is right to hand it over
will make decisions like when, and to who, 2. As your family grows, you can choose
the trust is distributed. who benefits, when and by how much
3. Money is usually protected from divorce
You can make gifts into a trust, which are or bankruptcy
held there until the trustee decides it’s time
for someone to receive them. With all trusts:
4. The trustees choose where to invest
The benefit of doing this is so you can stay the money
in control. 5. Any growth, income or interest generally
sits outside of your estate, and usually
Discretionary and bare trusts are the you can’t benefit from it
most popular choices. Bare trusts are 6. The seven year clock starts ticking on
the simplest type. They’re usually set up any money paid into the trust
for a child, with one or two adults acting 7. G ifts can be made as a one-off,
as trustees. Bare trusts are also known ad-hoc or regular payments
as absolute trusts; the beneficiaries
are nominated at outset and cannot be There are other types of trusts that do
changed. Once they reach age 18 (16 in allow you to receive income or capital.
Scotland), they are entitled to the The most popular are discounted gift
trust’s assets. trusts and loan trusts.

For these reasons, they’re usually used to

save for children where the amounts are
Trusts can be complicated, so
smaller and the investor is happy for the
if you’re considering them we
proceeds to be paid at age 18.
recommend you ask for advice. You
can speak to our advisory helpdesk
by calling us on 0117 317 1690.

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Discounted gift trusts provide Loan trusts slow down the growth
immediate IHT savings and a of the value of an estate and the
regular income. amount of IHT.

HERE’S HOW: HERE’S HOW:

• A gift is made into the trust, • You loan money to a trust,
usually of £100,000 or more. which is invested.
• The gift is split into two parts. • As it’s a loan you can get full or
• The first part is treated as a gift partial repayment at any time.
and will fall out of the estate after • The outstanding loan amount is
7 years. always in your estate.
• The second part (the discount) • But any growth sits outside and
is used to provide income to the is IHT free.
investor for life, and is immediately • The loan is set up interest free
IHT free. and regular repayments can
• The amount of the discount is be made to provide an income
based on the age and health of stream.
the investor.
• The longer you’re expected to live,
the greater the discount, and the
larger the immediate IHT savings.

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PENSIONS
Normally, pensions fall outside of the estate.
You can name as many beneficiaries as you like
and there’s no IHT for them to pay.

If you die before you’re 75, and your If you die age 75 or older, withdrawals will
pensions are below the lump sum be taxed as the beneficiary’s income at
and death benefit allowance, which their marginal rate (0%, 20%, 40% or 45%,
is £1,073,100 for most people, your depending on their withdrawals and
beneficiaries can usually withdraw what other income).
they like from your pension without
paying tax. If they’re a Scottish tax payer the Scottish
rates will apply (0%, 19%, 20%, 21%,
If you want to know more about the 42%, 45% or 48%, depending on their
new lump sum allowances visit: withdrawals and other income).
www.hl.co.uk/pensions/contributions/
new-lump-sum-allowance. WHO WILL BENEFIT?
It’s important to let your pension provider
If you chose to receive an annuity which is know who you’d like to benefit from
paid to a beneficiary after your death, those your pension. You can do this using an
payments could also be tax-free. expression of wish form. Your nomination
is not legally binding, but it does make
Visit www.hl.co.uk/annuities for more your intentions clear.
information on annuity options.

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 KEEP IT IN THE FAMILY
You could save your loved ones thousands.

Tax rules and benefits are constantly SPEAK TO OUR ADVISORY HELPDESK
changing, our financial advisers can check The first step to finding our whether
you’re up-to-date and are making the most advice could help reduce your inheritance
of your personal allowances. tax liability is to speak to our advisory
helpdesk. They aren’t advisers, but can
We won’t waste your time or money. help you work out if advice could help you
and will discuss the charges involved.
We’ll only recommend you meet a
specialist financial adviser if it’s right If it looks like we could help, we’ll
for you. book your free initial consultation with
an adviser.

You can reach the advisory helpdesk on

0117 317 1690. Lines are open from
8.30am until 5pm from Monday until
Friday.

Or you could book a call back at a time

that works for you. Book your call back at
www.hl.co.uk/financial-advice/speak-
to-an-adviser

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Questions our advisors get asked

Can I give my home to my children and still live adviser would consider the options available to
in it, inheritance tax free, if I pay a rent to them? you to reduce the taxable value of your estate:
In principle yes, providing the leasing of the gifting, use of trusts, life assurance, etc. before
property is arranged on commercial terms. making specific recommendations. Reducing IHT
A formal lease/tenancy agreement is wise in often uses more than one strategy.
these circumstances. It is important to bear
in mind: When is the best time to start inheritance
tax planning?
• The property will no longer be yours: your This depends upon a number of factors including
children could sell at any time or the property the size of the estate, the amount of the liability
could become part of a future divorce and when it is likely to fall due.
agreement or bankruptcy
• The property will become an investment The majority of investors accumulate assets
belonging to your children and subject to during their working lives. At retirement, assets
capital gains tax on the growth in value and are converted from producing growth to income
income tax on the rent you pay them to supplement pensions. Therefore it makes
• Giving your home to your children will normally sense for investors to take stock and review
be a potentially exempt transfer and will not be their inheritance tax position at or shortly after
inheritance tax free for 7 years retirement or upon receipt of a windfall.

HMRC dislike inheritance tax saving schemes that How often should I review my inheritance
involve the family home and these are likely to tax plans?
be subject to the greatest scrutiny. If you try any Generally speaking you should review your gifting
inheritance tax planning that involves the family strategy once a year, since there are various
home, you should work on the basis there is no annual exemptions which can be used. Therefore
guarantee of success. it makes sense to review your inheritance tax
plans at the same time. For investment based
Why do I have to record gifts? plans you should review how they are doing at
The principle of self-assessment is you should least annually.
always declare your tax affairs fairly and honestly.
When HMRC challenge a tax return or probate, What are the tax implications of passing my
they work on the basis of ‘guilty until proven inheritance on to my children?
innocent’ – the onus is on the executors to prove If you gift all or part of an inheritance you receive
what has been done. Therefore if your executors on to your children it is treated as a gift made
do not have clear documentation of your gifts by you and is subject to normal gift rules. There
or other inheritance tax plans, inheritance tax is could therefore be an inheritance tax liability.
likely to be paid. However, it is possible to alter a will after death in
order to avoid inheritance tax. By creating a ‘deed
How would a professional review my of variation’, the beneficiaries of a will can agree
inheritance tax situation? to change a deceased’s instructions in order to
The first step is to calculate the potential distribute assets in an inheritance tax-efficient
liability and when this might fall due. Therefore manner. For example, having the legacy paid
they would require full details of your financial directly to your children rather than you. This has
circumstances and a summary of your will (if you to be arranged within 2 years of death. Please
have made one). Next would be to ensure that note tax rules are subject to change.
you had sufficient income and capital to meet
your own needs and requirements. Then the
 ABOUT US
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FTSE-listed company helping UK savers
and investors for more than 40 years.

GET IN TOUCH
Call us: 0117 317 1690
(Monday – Friday, 8.30am – 5pm).

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Write to us:
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One College Square South
Anchor Road
Bristol
BS1 5HL

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 Hargreaves Lansdown 0117 317 1690
One College Square South advice@hl.co.uk
Anchor Road Bristol BS1 5HL www.hl.co.uk

Issued by Hargreaves Lansdown Advisory Services.

0624 Authorised and regulated by the Financial Conduct Authority.

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