Inheritance Tax UK: A Guide for Accountants and Finance Professionals

What Is Inheritance Tax?

Inheritance tax (IHT) is charged on the estate (property, money, and possessions) of a person who has died, and on some gifts made during their lifetime. It is one of the most complex areas of UK personal taxation and a significant source of advisory work for accountants, tax advisers, and solicitors working with wealthy individuals and families.

IHT Rates and Nil-Rate Bands

The standard IHT rate is 40% on the value of an estate above the nil-rate band (NRB). The NRB is £325,000 per individual and has been frozen at this level since 2009 — the freeze was extended through to April 2030 in the October 2024 Autumn Budget. The Residence Nil-Rate Band (RNRB) of £175,000 applies where the family home is left to direct descendants, giving a combined threshold of £500,000 per individual. Married couples and civil partners can transfer unused nil-rate bands to each other, giving a potential combined threshold of up to £1 million.

Exemptions and Reliefs

Key reliefs include: Business Property Relief (BPR) — 100% relief on qualifying business assets including shares in unlisted companies and trading businesses, making BPR one of the most powerful IHT planning tools. Agricultural Property Relief (APR) — up to 100% on qualifying agricultural property. Annual gift exemption — £3,000 per year can be gifted free of IHT. Small gifts exemption — gifts of up to £250 per recipient per year. Gifts out of normal expenditure from income — potentially unlimited but must be regular and not affect the donor's standard of living.

Potentially Exempt Transfers (PETs)

Gifts to individuals (other than trusts) are PETs and become fully exempt from IHT if the donor survives 7 years from the date of the gift. If the donor dies within 7 years, taper relief may reduce the IHT charge on the gift depending on how many years have elapsed.

Changes from October 2024 Budget

The October 2024 Autumn Budget announced significant IHT changes taking effect from April 2026: agricultural and business property relief will be capped at £1 million for combined assets (100% relief above £1 million replaced by 50% relief, giving an effective 20% IHT rate on excess). Pension funds will be included in taxable estates from April 2027, removing a long-standing IHT planning strategy. These are the most significant IHT changes in a generation.

Reporting and Payment

IHT must be reported to HMRC and any tax paid within six months of death (using form IHT400 or simplified IHT205 for smaller estates). Interest accrues on unpaid IHT after six months. Property and business assets can be paid in instalments over 10 years in some circumstances.

Further Reading

• ACCA ATX Guide
• Capital Gains Tax Guide
• Tax CPD for Qualified Accountants

CPD for Tax Professionals

Learnsignal offers CPD courses covering IHT, personal tax, and the October 2024 Budget changes. Explore CPD courses.

FAQ

Do I need to submit an IHT return for all estates?

No — simplified returns apply for smaller estates below the IHT threshold. IHT400 is required for larger estates and where reliefs are being claimed. A solicitor or tax adviser typically handles this.