Inheritance Tax Allowances: Use Them or Lose Them

We’re coming to the last quarter of the financial year and, if you haven’t thought about Inheritance Tax planning, now is the time to do so.

Firstly, not all estates are subject to Inheritance Tax; it’s good financial planning to understand the current allowances and what tools are available to help you mitigate the tax due on death should your assets be over those allowances.


Each person is entitled to £325,000 worth of assets before their estate is subject to tax. This is called the Nil Rate Band. Additionally, if you own a property that you intend to leave to your children you may be eligible for up to a further £175,000 to be offset against that property, depending on the value of your property, which is called the Residential Nil Rate Band.

Any assets over this allowance will be taxed at 40% - yes, 4.0!

You should therefore maximise the current allowances provided by HM Revenue and Customs each year. Some of these allowances include:

  • Transfers between spouses and civil partners are exempt from any type of Inheritance Tax liability (if you are both are UK domiciled)

  • You can gift a total of £3,000 each year; this is often referred to as the annual exemption

  • Going to a Wedding? Gifts of £5,000 for children, £2,500 for grandchildren, £1,000 for anyone else are all exempt

  • Small gifts of £250

  • Normal expenditure out of income – this one can be tricky and you should always consult with your legal team or accountant before making such transfers/payments

  • Gifts to charities or political parties

Potentially Exempt Gifts

So what if you make a gift of £13,000 in any one year?

You are still entitled to use your annual exemption of £3,000 and the £10,000 becomes a potentially exempt transfer. This means that you must survive 7 years of making this gift so that it does not have any Inheritance Tax consequences.

Get In Touch

If you believe your estate to be liable for Inheritance Tax, or if you are unsure about the rules, please get in touch today to book an initial consultation.