Inheritance Tax: What You Need to Know – and How to Plan for the Future

Inheritance Tax (IHT) is often described as a “voluntary tax” — not because it doesn’t apply, but because with the right planning, much of it can be reduced or even avoided.

But for many families, it’s a tax that arrives at the worst possible time: when they’re grieving and trying to navigate an already complex financial picture. And with ongoing changes in government policy, including the 2025 budget announcements, it’s more important than ever to get ahead.

What is Inheritance Tax?

Inheritance Tax is charged at 40% on the value of your estate above a certain threshold — typically £325,000 (known as the nil-rate band), with a possible extra £175,000 allowance if your home is passed to direct descendants (the residence nil-rate band).

Spouse-to-Spouse? You’re Safe (For Now)

The good news: if you leave everything to your spouse or civil partner, there’s no inheritance tax to pay at that point. Transfers between spouses are entirely tax-free. What’s more, your unused allowance can be transferred to your partner — effectively doubling your IHT threshold as a couple to £650,000–£1 million, depending on how your estate is structured.

The Problem: What Happens After?

The challenge often comes when the second spouse passes away. That’s when the full estate — including the value of the family home, savings, investments, and any assets passed down — can be taxed heavily if it exceeds the available threshold.

With property values rising over the years, more families than ever are finding themselves caught in the IHT net, often unintentionally.

Budget August 2024: What Changed?

The August 2024 Budget marked a significant change.

• Inherited pensions would now form part of the IHT calculation.

So What Can You Do?

There are several smart strategies to manage your exposure to IHT. Here are a few:

1. Use Your Allowances Wisely

Make use of annual gift exemptions (£3,000 per person), small gifts allowance, and wedding gift allowances to reduce the size of your estate gradually and legally.

2. Consider Lifetime Giving

You can give away assets entirely — and if you survive 7 years, these gifts fall outside your estate for IHT purposes (the “7-year rule”).

3. Trusts

Placing assets into trust can remove them from your estate, though rules are complex. Trusts can offer flexibility and control, but you’ll need advice to get it right.

4. Business and Agricultural Reliefs

Rules also changed in 2024, making it less generous. This is a complex area and if you think agricultural or business relief apply to your estate, it’s vital you seek advice.

Final Thoughts

Inheritance Tax is no longer just an issue for the wealthy. With frozen thresholds and rising asset values, many ordinary families are now affected — sometimes without realising it until it’s too late.

By planning ahead, you can reduce the impact on your loved ones and ensure that more of your wealth is passed on the way you intend.

Need to talk about inheritance tax planning?
We help individuals and families take proactive steps to reduce their IHT liability, protect their legacy, and gain peace of mind. If you’re thinking about your next steps — or simply want to make sure you’re not sleepwalking into a tax bill — get in touch for a conversation.

📞 01952 442 088
📩 info@8fp.co.uk
💻 Or book a meeting online here.