Inheritance Tax UK: A Guide for Accountants and Finance Professionals

Inheritance Tax (IHT) is the tax that can be charged on the estate of someone who has died, and sometimes on certain gifts. It's an emotive and often misunderstood tax, and one that accountants and advisers are frequently asked about. This guide explains what Inheritance Tax is, how it works in the UK, the key concepts and reliefs, and why understanding it matters — in clear, plain language. Because IHT rates, thresholds and rules change over time and the area is complex, always check the current position with HMRC or a qualified adviser for specific circumstances. For broader tax study, see our ACCA TX taxation guide.

What is Inheritance Tax?

Inheritance Tax is a tax on the estate — the property, money and possessions — of someone who has died. It can also apply to certain gifts made during a person's lifetime, particularly where the person dies within a certain period after making them. The key idea is that, above a certain tax-free amount, the value passing on death (and sometimes by gift) may be subject to IHT. Not every estate pays IHT — many fall below the relevant threshold or benefit from reliefs and exemptions — but for larger estates, IHT can be a significant consideration. Understanding how it works is important for individuals planning their affairs and for the advisers who help them.

How Inheritance Tax works

In broad terms, IHT is calculated on the value of a person's estate above a tax-free threshold (often referred to as the nil-rate band). Value above the available threshold may be taxed at the applicable rate. Several features shape how it works:

• The nil-rate band — a threshold below which no IHT is charged, the amount of which is set by the government and changes over time.
• Additional allowances — there can be further allowances in certain circumstances, such as those relating to a main residence passing to direct descendants.
• Transfers between spouses or civil partners — these are typically exempt, and allowances can sometimes pass between them.
• Lifetime gifts — some gifts may become chargeable if the person dies within a certain number of years of making them.

The specific thresholds, rates and rules are set by the government and change, so it's essential to check the current position rather than relying on fixed figures.

Reliefs and exemptions

The IHT system includes various reliefs and exemptions that can reduce or eliminate the tax. Transfers between spouses and civil partners are generally exempt; gifts to charities are typically exempt; and there are specific reliefs that can apply to certain types of asset, such as some business and agricultural property, subject to conditions. There are also various exemptions for certain lifetime gifts. The availability and details of these reliefs are set by the rules and come with specific conditions, and they change over time. Because reliefs can significantly affect the IHT position, identifying which might apply — and checking the current conditions — is an important part of IHT planning, and an area where specialist advice is often valuable.

Planning and why it matters

Inheritance Tax is an area where planning can make a real difference, within the rules. Steps such as making use of available allowances and exemptions, lifetime giving, and structuring affairs appropriately can affect the eventual IHT position — though planning must always be done properly and within the law, and should take account of the individual's overall circumstances and wishes, not just tax. For accountants and advisers, a good understanding of IHT is valuable in helping clients plan and in answering the questions they often raise. Because IHT is complex, emotionally sensitive and subject to change, this guide is a general overview only. Always check the current rules with HMRC, and seek qualified, specialist advice for specific situations.

Frequently asked questions

What is Inheritance Tax?

A tax on the estate — property, money and possessions — of someone who has died, and sometimes on certain lifetime gifts, charged on value above a tax-free threshold.

How is Inheritance Tax calculated?

Broadly on the value of the estate above the available nil-rate band threshold, at the applicable rate, taking account of additional allowances, spouse exemptions and certain lifetime gifts. The figures change, so check the current position.

What reliefs and exemptions exist?

Transfers between spouses and civil partners and gifts to charity are generally exempt, and specific reliefs can apply to certain business and agricultural property, subject to conditions that change over time.

Can Inheritance Tax be planned for?

Yes — within the rules, using allowances and exemptions, lifetime giving and appropriate structuring can affect the position, though planning must be done properly and consider the individual's overall circumstances.

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