Inheritance Tax (IHT) – UK Guidance, Planning & Advice

Inheritance Tax (IHT) can significantly reduce the value of an estate passed on to loved ones. With the right inheritance tax planning advice, it is often possible to reduce, delay, or legally avoid inheritance tax using allowances, trusts, and insurance solutions.

This guide explains how inheritance tax works in the UK, how probate and inheritance tax are connected, and the most common strategies used by inheritance tax specialists to protect estates.

What Is Inheritance Tax?

Inheritance Tax is a tax on the estate of someone who has died, including property, savings, investments, and possessions. HMRC inheritance tax rules apply once the estate exceeds the available tax-free thresholds.

The standard inheritance tax rate is 40% on the portion of the estate above the nil-rate band, although exemptions and reliefs may apply.

Probate and Inheritance Tax

Probate and inheritance tax are closely linked. In most cases, inheritance tax must be calculated and at least partially paid before probate is granted. Executors are responsible for submitting HMRC probate and inheritance tax forms, including the IHT400 where required.

Delays or errors can slow probate and result in penalties or interest charges from HMRC.

Free Inheritance Tax Advice & Professional Help

Many people seek free inheritance tax advice to understand their exposure and planning options. For complex estates, an inheritance tax accountant or inheritance tax specialist can provide tailored guidance and ensure compliance with HMRC rules.

Inheritance Tax Planning and Avoidance Strategies

There are legal ways of avoiding inheritance tax or reducing liability when planned correctly and early enough. Common strategies include:

• Using tax-free allowances and exemptions
• Making lifetime gifts and managing gifts and inheritance tax rules
• Setting up trusts to avoid inheritance tax
• Using life insurance for inheritance tax
• Equity release planning

Trusts and Inheritance Tax

Trusts can be an effective inheritance tax planning tool. Options include discretionary trusts, life interest trusts, living trusts, and trust funds set up to avoid inheritance tax.

Each trust type has different inheritance tax implications, including periodic charges and exit fees. Professional advice is essential when setting up a trust to avoid inheritance tax.

Life Insurance and IHT Protection

Life insurance to cover inheritance tax is commonly used to provide funds for beneficiaries to pay the tax bill. IHT insurance, including second death life policies, can help prevent the forced sale of property or assets.

Insurance against inheritance tax is usually written in trust so the payout does not form part of the taxable estate.

Equity Release and Inheritance Tax

Equity release can reduce the value of an estate for inheritance tax purposes but may impact beneficiaries’ inheritance. Equity release and inheritance tax planning should be considered carefully with expert advice.

Inheritance from Overseas and Foreign Tax

Inheritance from overseas may still be subject to UK inheritance tax depending on domicile status. Special rules apply to estates involving assets or inheritance tax from countries such as Spain.