Inheritance Tax: A Practical Guide for Accountants
Inheritance tax is charged on estates above the nil-rate band. This guide covers rates, thresholds, key reliefs including Business Property Relief and Agricultural Property Relief, and practical IHT planning strategies.
Inheritance tax is no longer just a problem for the very wealthy. With property values having risen substantially over the past two decades and the nil-rate band frozen at £325,000 since 2009, a growing number of ordinary estates breach the threshold. For accountants advising clients on wealth management and estate planning, IHT literacy is essential.
Rates and Thresholds
The nil-rate band (NRB) is £325,000 — frozen until at least April 2028. The estate pays 40% on the excess. A reduced rate of 36% applies where at least 10% of the net estate passes to charity. The residence nil-rate band (RNRB) provides an additional £175,000 where a main residence passes to direct descendants — children, stepchildren, or grandchildren. A married couple who both die leaving their estate to children can shelter up to £1 million (2 × £325,000 + 2 × £175,000), subject to the taper for large estates above £2 million.
Transferable Nil-Rate Bands
Unused NRB and RNRB from a deceased spouse or civil partner transfer to the survivor. The transfer claim is made on the second death — the personal representative calculates what percentage of the first spouse's NRB was unused and claims the same percentage of the NRB at the second death.
Business Property Relief (BPR)
BPR provides 100% relief (no IHT) on qualifying business assets held for at least two years: shares in unquoted trading companies (including most AIM-listed shares); interests in unincorporated trading businesses; and assets used in the deceased's own company. Investment businesses — property rental, holding quoted shares, managing investments — do not qualify. Mixed businesses require apportionment. BPR is the most important relief for business owners and one of the most complex to apply correctly.
The Seven-Year Rule
Gifts made more than seven years before death are exempt. Taper relief reduces IHT on gifts made 3–7 years before death on a sliding scale (from 80% of the full rate at 3–4 years to 20% at 6–7 years). Note: taper relief reduces the IHT charge, not the value of the gift — it only applies where the gift itself exceeds the available NRB.
Practical Planning Points
Use the annual £3,000 exemption every year — it expires at the end of each tax year (with one year carry-forward). Make gifts from surplus income regularly — these are immediately exempt if they maintain the donor's standard of living. Review wills to ensure NRB and RNRB are utilised efficiently. For business owners, ensure assets qualify for BPR and consider whether holding structures optimise the relief.
Further Reading
Study with Learnsignal: Tax CPD for qualified accountants. Browse CPD.
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Learnsignal Education Team
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