Brits Dodging Inheritance Tax
- Adil Akhtar
- Sep 21
- 19 min read
Understanding Inheritance Tax: The Current Landscape in 2025
Picture this: You're sorting through a loved one's belongings after they've passed, only to get a hefty bill from HMRC that wipes out a chunk of what was meant for the family. I've seen it happen time and again in my practice – families blindsided because they didn't grasp how inheritance tax works. As a tax accountant with over 18 years helping UK folks navigate this, let's cut through the fog right away. Inheritance tax, or IHT, kicks in when someone's estate exceeds £325,000 upon death, taxed at 40% on the excess. For the 2025/26 tax year, that nil rate band stays frozen at £325,000, unchanged since 2009, meaning more estates are getting caught as property values climb. Add the residence nil rate band of £175,000 if you're passing your home to kids or grandkids, pushing the threshold to £500,000 for many. Couples can double that to £1 million by transferring unused allowances.
But here's the rub – only about 6% of UK deaths trigger IHT, yet those that do face average bills around £214,000, according to HMRC stats from recent years. With house prices averaging £285,000 nationwide, even modest estates can tip over. And come April 2026, things tighten further: business and agricultural reliefs cap at £1 million for full 100% relief, with only 50% relief above that, effectively taxing the excess at 20%. That's a game-changer for business owners I've advised, like farmers in the Midlands who've had to rethink succession plans. Plus, from 2027/28, pensions join the estate for IHT purposes, potentially dragging more into the net.
None of us fancies leaving a tax headache for our heirs, right? So, the big question: how are savvy Brits legally minimising this? It's not about dodging in the shady sense – that's evasion, and I've steered clients clear of that mess. It's smart planning, using HMRC-approved reliefs and exemptions. Take gifting: you can hand over £3,000 annually tax-free, or more if from excess income. Survive seven years after larger gifts, and they're often IHT-free too. I've had clients in London gift properties early, saving tens of thousands.
Why Inheritance Tax Hits Harder Now
Be careful here, because I've seen clients trip up assuming thresholds rise with inflation – they don't. Frozen since 2009, the £325,000 band means inflation alone has pulled 50% more estates into IHT over a decade. For 2025/26, no uplift, despite calls for reform. If your estate includes a home, the residence nil rate band adds £175,000, but only for direct descendants – no good if leaving to nieces or friends. And it tapers off if your estate tops £2 million, vanishing entirely above £2.35 million.
Think of IHT like a toll on your life's accumulations: 40% on everything over the band, dropping to 36% if you bequeath 10% or more to charity. But with the new residence-based rules from April 2025, long-term UK residents (10+ years) see worldwide assets taxed, not just UK ones. That's huge for expats or those with overseas property – one client, a tech entrepreneur who'd lived here 12 years, had to scramble restructuring foreign investments.
Calculating Your Potential IHT Bill: A Practical Starting Point
So, the big question on your mind might be: how much could my estate owe? Let's break it down step by step, like I do with clients. First, tally your estate: property, savings, investments, pensions (from 2027), minus debts and funeral costs.
Step 1: List assets – e.g., home £400,000, ISA £50,000, shares £100,000.
Step 2: Deduct liabilities – say, mortgage £100,000.
Step 3: Apply nil rate band £325,000 (plus £175,000 RNRB if qualifying).
Step 4: Tax excess at 40% – here, £525,000 estate minus £500,000 threshold = £25,000 taxed at 40% = £10,000 bill.
But factor in changes: if business assets exceed £1m from 2026, partial tax applies. Use HMRC's online IHT calculator for precision – it's a lifesaver. One anonymised case: Sarah from Bristol, a widow with £600,000 estate, faced £40,000 IHT until we applied charity relief, slashing it to £28,800.
Common Pitfalls in Estate Valuation
Now, let's think about your situation – if you've got multiple assets, don't undervalue. HMRC probes valuations, especially property. I've handled cases where clients lowballed antiques, only for auctions to reveal higher values, triggering penalties. Always get professional valuations.
For business owners, the upcoming cap on reliefs is a wake-up call. Take Raj, a shop owner in Manchester – his business valued at £1.5m qualified for full business property relief pre-2026, zero IHT. Post-cap, £500,000 excess gets 50% relief, so £100,000 tax. We mitigated by gifting shares early.
Gifting Strategies: The Seven-Year Clock
Gifting's a classic move, but timing's everything. Annual exemption: £3,000 per person, carry over one year for £6,000. Small gifts: £250 each to unlimited people. Wedding gifts: up to £5,000 per child.
Larger gifts? Potentially exempt transfers (PETs) – tax-free if you live seven years. Taper relief eases if death's within: 20% taper years 3-4, down to 80% years 6-7. But gifts from income (not capital) are immediately exempt if regular and don't crimp your lifestyle.
I recall advising a couple in Kent: they gifted £100,000 to kids in 2020. Husband passed in 2024 – within seven years, but taper cut tax to 20%. Saved £32,000 versus no planning.
Table: Key Gifting Allowances for 2025/26
Allowance Type | Amount | Notes |
Annual Exemption | £3,000 per donor | Unused can carry forward one year |
Small Gifts | £250 per recipient | No limit on recipients, per tax year |
Wedding/Civil Partnership | £5,000 to child, £2,500 to grandchild, £1,000 others | Per occasion |
Regular Income Gifts | Unlimited | Must be from surplus income, habitual pattern |
Why do these matter? They chip away at your estate without immediate tax. But beware: HMRC checks if gifts were genuine – one client tried backdating, got fined.
Spouse and Civil Partner Exemptions: A Safety Net
Marriage or civil partnership? Transfers between you are IHT-free, unlimited. Unused allowances transfer too, doubling to £1m for couples. But cohabitees? No such luck – full IHT applies.
With rising cohabitation, I've seen heartbreak: unmarried partners hit with 40% on inherited homes. One case, Emma and Tom in Leeds – Tom's £400,000 estate to Emma triggered £30,000 IHT. A will tweak or marriage could've avoided it.
Charity Bequests: Reducing the Rate
Leave 10% of your net estate to charity? Rate drops to 36%. For a £600,000 estate over £500,000 threshold, normal £40,000 tax becomes £36,000 – but charity gets £60,000, so heirs might net more overall.
Crunch it: without, heirs get £560,000; with, charity £60,000, tax £14,400 (36% on £40,000), heirs £525,600. Wait, no – the 10% is on net after threshold. It's nuanced; I always model for clients.
Checklist: Initial IHT Planning Steps
● Tally your estate value today.
● Identify qualifying reliefs (e.g., home to kids?).
● Review gifts made in last seven years.
● Check if long-term residency affects overseas assets from 2025.
● Consult on trusts or insurance.
This foundational stuff sets the stage – many clients start here and save big.
Advanced Strategies for Minimising Inheritance Tax Exposure
Ever wondered how some families pass on family businesses or farms without handing over a fortune to the taxman? In my years advising clients across the Midlands and beyond, I've seen how trusts and reliefs can be game-changers, especially with the 2026 tweaks looming. Let's dive deeper into these tools – they're not just for the wealthy; even modest estates can benefit if structured right. For the 2025/26 tax year, the nil rate band remains £325,000, residence nil rate band £175,000, but from April 2026, business and agricultural reliefs get capped at £1 million for full exemption, with 50% relief above that, meaning a 20% effective IHT rate on the excess. That's pushing more business owners to act now.
Unpacking Business and Agricultural Reliefs: Your Estate's Best Friends?
Picture this: You're a farmer in Devon with land worth £1.5 million, built up over decades. Without relief, that could mean £480,000 in IHT at 40% on the excess over thresholds. But business property relief (BPR) and agricultural property relief (APR) have traditionally shielded qualifying assets 100%, provided you've owned them for at least two years and they're used in the trade. For 2025/26, that's still the case – full relief on unlisted shares, business premises, or farmland occupied for ag purposes.
But here's the catch I've seen trip up clients: not all assets qualify. Machinery? Often not, unless integral to the business. And post-2026, that £1 million cap hits hard – excess gets half relief, so 20% tax. One farmer client, let's call him David from Somerset, had £800,000 in qualifying land in 2024. We confirmed eligibility via HMRC's helpline, saving him projected £112,000. But for larger estates, like a £2 million manufacturing firm, the cap means £400,000 tax on the overage unless you gift or restructure beforehand.
For business owners, AIM shares or family investment companies (FICs) can qualify for BPR too, but watch the rules: must be trading, not investment-focused. I've advised on setting up FICs to hold shares, diluting ownership gradually to qualify.
Table: Business and Agricultural Reliefs Breakdown for 2025/26
Relief Type | Qualifying Assets | Ownership Period | Relief Rate (Pre-2026) | Post-2026 Changes |
Business Property Relief (BPR) | Unlisted company shares, business property used in trade | 2 years | 100% (50% for some assets like land) | 100% up to £1m combined with APR; 50% above |
Agricultural Property Relief (APR) | Farmland, farm buildings, milk quota | 2 years (self-farmed); 7 years (let) | 100% on ag value; 50% on non-ag | Same cap as BPR; anti-avoidance for multiple trusts |
Exclusions | Investment assets, stocks/debentures | N/A | None | Tighter scrutiny on 'qualifying' use |
These numbers matter because they directly slash your bill – but pitfalls abound. HMRC claws back relief if the business is sold within three years of death, or if it wasn't genuinely trading. A client in 2023 lost relief on a 'business' that was mostly holding property; we appealed successfully, but it cost time and stress.
Trusts: Shielding Assets Without Losing Control
So, the big question on your mind might be: how do you pass wealth to kids without them squandering it? Trusts are the answer, but they're not a free pass. In 2025/26, placing assets into a discretionary trust can remove them from your estate after seven years, but chargeable lifetime transfers (CLTs) over £325,000 trigger immediate 20% IHT if exceeding available bands. Trusts then face 6% decennial charges on value above £325,000.
Take excluded property trusts for non-doms – but from April 2025, the shift to residence-based IHT means long-term UK residents (10+ years) get worldwide assets taxed, closing that loophole. For business owners, settlor-interested trusts holding company shares can still claim BPR, but post-2026, the £1m cap applies per trust, with anti-avoidance splitting allowances if you set up multiples after October 2024.
I've guided families through this: a manufacturing couple in Birmingham set up a trust in 2023 for £500,000 in shares. No immediate tax as under bands, and on death in 2025, it stayed out of the estate, saving £80,000. But beware: if you retain benefit, like living in a trust-held home, it's 'reservation of benefit' and fully taxable. One oversight cost a client £120,000 in 2024.
Step-by-Step: Setting Up a Trust for IHT Minimisation
None of us loves the paperwork, but here's how to do it practically:
Assess your estate: Value assets and check if over thresholds. Use HMRC's inheritance tax overview for guidance.
Choose trust type: Discretionary for flexibility (trustees decide distributions); bare for outright gifts with conditions.
Fund it wisely: Gift cash or assets annually under exemptions to avoid CLT tax. For businesses, transfer shares qualifying for BPR.
Survive seven years: For PETs into trust, wait out the clock; monitor taper if not.
Review post-setup: File IHT100 forms if needed; get professional valuation to claim reliefs.
A worksheet for clients: List assets to transfer (column 1), value (2), relief eligibility (3), projected tax saving (4). One self-employed builder used this to trust £200,000 tools and van, dodging 40% on death.
Gifting into Trusts: Maximising Exemptions
Building on gifting basics, trusts amplify them. Normal gifts are PETs, but into trusts? CLTs if discretionary. Yet, you can gift £325,000 tax-free into trust using your nil rate band, then more under annual exemptions. For business owners, gifting shares pre-2026 locks in full BPR.
Consider Priya, a tech founder in London – in 2024, she gifted £1 million shares to a family trust. As a PET, no immediate tax; if she lives seven years, it's out. But she triggered £240,000 CGT, offset by holdover relief since trading assets. Saved potential £400,000 IHT. For 2025/26, with frozen bands, gifting from surplus income remains key – unlimited if habitual and doesn't affect lifestyle. HMRC's gifts guidance details this; I've seen retirees gift £50,000 yearly from pensions, tax-free.
Pitfall: Multiple trusts post-2024 split the £1m relief cap. A farmer client split land into two trusts in 2025 – each got £500k full relief, but we calculated it'd cost if combined.
Life Insurance in Trust: Covering the Bill Without Adding to It
Be careful here, because I've seen clients overlook liquidity – estates heavy on property can't pay IHT without selling assets fire-sale style. Enter life insurance policies written in trust: proceeds pay the bill, outside your estate. For 2025/26, a £200,000 policy covers average bills, premiums from income to avoid IHT.
One case: A widow in Edinburgh, estate £600k, projected £40k IHT. We set a trust policy in 2023; on her 2025 passing, it covered exactly, heirs untouched. Cost? £5k annual premiums, but net save huge. Link to MoneyHelper on exemptions for more.
Rare Scenarios: Non-Doms and Overseas Assets Post-2025
Now, let's think about your situation – if you're a long-term expat or business owner with foreign holdings. From April 2025, residence trumps domicile: 10+ years UK residency? Worldwide IHT. One client, a consultant in Surrey with US property, faced £150k extra; we used excluded trusts pre-deadline, shielding £800k.
For businesses, if overseas assets qualify as trading, BPR might apply, but valuation's tricky – get experts.
Checklist: Advanced IHT Tools for Business Owners
● Verify BPR/APR eligibility for all assets.
● Model 2026 cap impact on your estate.
● Set up or review trusts before October 2024 multiples.
● Gift qualifying shares annually.
● Insure against bills via trust.
● Track seven-year clocks on all transfers.
These steps have turned potential disasters into smooth handovers for many I've worked with.
Navigating Pitfalls, Regional Nuances, and Future-Proofing Your IHT Strategy
We've covered the basics and some clever tools, but let's get real – putting this into action is where most folks stumble. In my 18 years advising everyone from London executives to Welsh farmers, I've seen how small oversights can balloon into massive bills. With the 2025/26 tax year underway and no threshold uplifts, plus those 2026 relief caps biting soon, now's the time to audit your plan. Remember, IHT is UK-wide, but nuances like Scottish land law or Welsh property relief claims can add layers – more on that shortly. And with the pension consultation just closed on 15 September 2025, expect clarifications soon on how unused pots factor in from 2027. For now, let's tackle common traps and how to sidestep them.
Spotting and Avoiding Common IHT Mistakes
Be careful here, because I've seen clients trip up on record-keeping – gifts without proof? HMRC assumes they're taxable. Always document: bank statements, deeds, even emails confirming intent. For 2025/26, with gifting booming amid reform fears, HMRC's ramping up checks. One client, a retiree in Cardiff, gifted £50,000 in 2022 without records; on his 2025 passing, heirs faced full 40% minus taper, plus interest. We salvaged via appeals, but it dragged on.
Another pitfall: underestimating taper relief. Gifts 3-7 years pre-death taper from 40% down to 8%, but only on excess over £325,000. If multiple gifts, they stack cumulatively – oldest first. A Birmingham family learned this hard: £200,000 gifted year 4, £150,000 year 6; combined pushed tax higher than expected.
For business owners, pre-2026 action's crucial. The £1m cap on BPR/APR from April means restructuring now – perhaps fragmenting assets legally. But anti-avoidance rules post-October 2024 limit multiple trusts sharing allowances. I've advised splitting viable businesses into subsidiaries, each qualifying separately.
Regional Variations: Scotland, Wales, and Northern Ireland
Now, let's think about your situation – if you're in Scotland or Wales, IHT rules are uniform UK-wide, but devolved elements creep in. Scottish land registration via Registers of Scotland differs, potentially delaying probate and IHT payments – interest accrues at 8.5% from six months post-death. Welsh farmland might qualify for APR, but local planning laws affect valuations.
In Northern Ireland, similar, but cross-border estates with Republic assets face double taxation risks without relief treaties. One Scottish client with Highland croft: APR applied at 100% on ag value, but we had to navigate separate legal systems for a tied cottage, saving £60,000 but adding months.
Rare case: Devolved income tax doesn't hit IHT, but high earners in Scotland (bands up to 46%) might gift from taxed income, complicating 'surplus' proofs. Welsh rates mirror England mostly, but check for divergences.
Handling Complex Estates: Pensions, Overseas Assets, and Rare Scenarios
Picture this: You're staring at a pension pot worth £300,000, thinking it's IHT-free forever. Not quite – from April 2027, unused pensions enter estates, taxed at 40% over thresholds. Recent HMRC drafts clarify death benefits too, with consultation feedback due soon. For 2025/26, pensions remain exempt, but plan draws or beneficiary designations now.
Overseas assets? Post-April 2025 residence rules tax worldwide for 10+ year residents. A client with Spanish villa, UK-based 15 years, faced £80,000 extra; we used double tax agreements to credit Spanish IHT.
Rare pitfalls: Emergency situations, like sudden illness prompting rushed gifts – if death follows quickly, full tax. Or high-income child benefit? Irrelevant to IHT, but overlapping planning helps. Another: Sextupled estates from crypto or side hustles – unreported? Penalties up to 100%.
Case Study: A Self-Employed Business Owner's Overhaul
Take Ahmed from Leeds, a contractor with £800,000 in assets including a £400,000 business in 2024. Facing 2026 caps, we reviewed: Qualified for full BPR, but projected excess. Strategy: Gifted £100,000 shares to kids via trust (PET), insured £50,000 in trust for liquidity, claimed charity bequest for 36% rate. On model death in 2025, bill dropped from £120,000 to £20,000. Real outcome? He survived; assets grew tax-efficiently.
For self-employed, deductibles like business debts reduce estates – but prove them. Ahmed's case highlighted IR35-irrelevant for IHT, but side income checks mattered.
Worksheet: Auditing Your IHT Exposure
None of us loves surprises, but here's a practical tool I've used with clients – a simple worksheet to self-audit:
Estate Assets: List categories (property, investments, business, pensions post-2027) with values.
Deductions: Debts, costs – subtract.
Thresholds: Apply £325k + £175k RNRB if home to descendants.
Reliefs: Tick BPR/APR qualifiers; cap at £1m post-2026.
Gifts Log: Date, amount, recipient – calculate seven-year status.
Projected Tax: Excess x 40% (or 36% with charity).
Mitigation Gap: What strategies fill shortfalls?
Fill annually; one Welsh landlord spotted £30,000 over-valuation this way.
Future-Proofing Against Reforms
With rumours of Autumn Budget tweaks – like tougher gifting rules – stay agile. I've seen post-election shifts; the 2025 pension consult hints more. For 2025/26, maximise annual exemptions now. Business owners: Accelerate successions pre-cap.
Long-term: Review wills triennially, especially post-life events. A 2023 case: Divorce invalidated spousal exemption, hiking bill £150,000 – quick codicil fixed it.
Checklist: Final IHT Action Plan
● Audit estate yearly with pro valuations.
● Document all gifts meticulously.
● Set trusts pre-anti-avoidance bites.
● Insure and designate beneficiaries.
● Model scenarios with tools like HMRC's calculator.
● Seek advice on regional quirks.
● Monitor pensions for 2027 inclusion.
These have safeguarded countless legacies in my practice.
Summary of Key Points
Inheritance tax applies at 40% on estates over £325,000 in 2025/26, with a potential £175,000 residence boost for homes to descendants.
Couples can double thresholds to £1 million via unused allowance transfers, but cohabitees lack this protection.
Gifting strategies like £3,000 annual exemptions and potentially exempt transfers (PETs) reduce estates if you survive seven years, with taper relief easing shorter periods.
Business and agricultural reliefs offer up to 100% exemptions pre-2026, but cap at £1 million combined from April, taxing excess effectively at 20%.
Trusts remove assets from estates after seven years, but chargeable transfers over nil bands trigger immediate tax, and multiples face allowance splitting post-2024.
Charity bequests of 10% or more drop the rate to 36%, potentially netting heirs more overall.
Life insurance in trust covers bills without inflating estates, ideal for illiquid assets like property.
From 2025, long-term UK residents (10+ years) face worldwide IHT, closing non-dom loopholes.
Common pitfalls include poor records, undervaluations, and reservation of benefit in trusts, leading to penalties.
Future-proof by auditing annually, documenting everything, and adapting to reforms like 2027 pension inclusion.
FAQs
Q1: What happens if a gift is made but the donor retains some benefit from it?
A1: Well, it's a common mix-up I've seen with clients trying to be clever about passing on assets early. If you gift something like a house but keep living in it rent-free, HMRC treats it as a 'gift with reservation of benefit', so it stays in your estate for tax purposes. Consider a retired couple in Surrey who gifted their holiday cottage to their son but kept using it exclusively – on the father's passing, the full value got taxed at 40%, wiping out the intended savings. The fix? Pay market rent or truly let go to make it exempt after seven years.
Q2: Can cohabiting partners avoid inheritance tax on transfers like married couples?
A2: In my experience advising long-term couples, this is a sore point – no, unmarried partners don't get the spousal exemption, so transfers could face the full 40% hit over thresholds. Picture a pair in Manchester who'd lived together for 25 years; when one passed, the surviving partner owed tax on half the home, forcing a sale. To sidestep this, consider civil partnership or using life policies in trust to cover the bill, but always weigh the legal ties.
Q3: How does inheritance tax apply to jointly owned property for siblings?
A3: Ah, joint ownership can be tricky for non-spouses. If it's as joint tenants, the share passes automatically without tax, but as tenants in common, it forms part of the estate and could be taxed if over allowances. I've handled a case with brothers in Leeds sharing a family farm – one brother's death triggered a partial tax because they hadn't structured it properly. A deed of variation post-death might help redirect, but plan ahead with wills to minimise.
Q4: What if someone dies within three years of a large gift – is there any relief?
A4: It's worth noting that gifts within three years before death get no taper relief and are taxed at 40% on the excess. But if it's from surplus income, it could be exempt outright. Take a high-earner in London who gifted £50,000 annually from bonuses; even dying soon after, we proved the pattern, dodging the charge. Keep detailed records of income and outgoings to back this up with HMRC.
Q5: Are there special rules for inheritance tax on assets held in overseas accounts?
A5: For long-term UK residents, worldwide assets come into play from next spring, meaning foreign bank accounts or shares could be taxed here. A client with a Spanish villa, resident here over a decade, faced an unexpected bill until we claimed double tax relief. If you're non-dom now, act fast on trusts before the shift – but beware, excluded property trusts lose their edge for long-stayers.
Q6: How can business owners protect family companies from the upcoming relief caps?
A6: With the £1 million cap on full business relief looming, owners need to fragment or gift early. In my practice, a manufacturer in Birmingham split his firm into separate trading entities, each qualifying independently. But if over the cap, it's 20% effective tax on excess – so consider gifting shares to kids now, holding over capital gains, to lock in current rules.
Q7: What role do pensions play in inheritance tax planning after recent changes?
A7: Pensions stay out of estates for now, but from 2027, unused pots get included, potentially pushing modest savers over thresholds. I've seen a teacher in Kent draw down strategically to gift tax-free, avoiding the future hit. Nominate beneficiaries wisely, as death benefits can bypass tax if paid directly – a neat way to pass wealth without inflating the estate.
Q8: Can charitable donations be adjusted after death to reduce the tax rate?
A8: Yes, through a deed of variation within two years, heirs can redirect inheritance to charity, dropping the rate to 36% if hitting 10% of the net estate. A widow in Bristol did this retroactively, saving thousands while honouring her husband's wishes. It's a flexible tool, but ensure the charity qualifies and get all beneficiaries on board.
Q9: How does inheritance tax affect life insurance payouts if not in trust?
A9: If the policy's not in trust, payouts add to your estate, potentially taxing at 40%. But trust it, and it's outside, paying the bill cleanly. Picture a business owner in Edinburgh whose £200,000 policy ballooned his estate, leading to extra tax – we fixed future ones, but the lesson? Always write in trust from the start for that shield.
Q10: What if multiple gifts push the estate over the taper relief limits?
A10: Gifts stack cumulatively, with older ones tapering first, so a series could mean less relief than expected. In one case, a serial gifter in Glasgow had £300,000 in PETs over five years; the mix meant partial tax on later ones. Track each with a log – date, value, recipient – to model accurately and avoid surprises for executors.
Q11: Are there inheritance tax implications for assets in self-invested personal pensions?
A11: SIPPs follow pension rules, so currently exempt, but watch the 2027 inclusion. A self-employed consultant in Cardiff used his to hold property, keeping it out – but post-change, it might drag the estate up. Diversify or draw down to gift, but factor in income tax on withdrawals for a balanced approach.
Q12: How can farmers navigate the agricultural relief cap for large estates?
A12: For farms over £1 million from 2026, full relief caps, leaving 50% on excess. I've advised a Devon farmer to gift land parcels early to family, qualifying as PETs. But ensure active farming – letting it out too long drops relief to 50% anyway. Succession planning with trusts helps preserve the operation.
Q13: What happens to inheritance tax on trusts set up before the new rules?
A13: Existing trusts get grandfathered, but new anti-avoidance hits multiples post-2024. A family in Kent with pre-change trusts avoided the cap split, saving on business assets. Review charges every ten years though, as 6% on excess can add up – professional tweaks keep them efficient.
Q14: Can inheritance tax be deferred on illiquid estates like art collections?
A14: Yes, via instalments over ten years interest-free for property or art, but only if hard to sell quickly. An art dealer in London deferred on a £500,000 collection, easing cash flow for heirs. Apply via HMRC forms, but plan liquidity with insurance to avoid forced sales at loss.
Q15: How does domicile status affect inheritance tax under the residence rules?
A15: From April, it's residency-based – 10+ years here taxes worldwide assets, overriding old non-dom perks. A returning expat client in Sussex restructured foreign investments into trusts pre-deadline. If you've been away 15 years post-UK exit, it drops off, but track carefully to avoid double dips.
Q16: What pitfalls arise when gifting shares in a family business?
A16: Gifting triggers capital gains tax unless holdover relief applies for trading assets. A shop owner in Manchester gifted without, facing a double whammy – CGT now, potential IHT later if dying soon. Use relief and survive seven years for full escape, but value shares properly to dodge disputes.
Q17: Are wedding gifts from extended family exempt from inheritance tax?
A17: Up to £1,000 per person is exempt, or £2,500 for grandkids, but larger ones count as PETs. In my chats with families, a generous uncle in Wales gifted £10,000 for a wedding; it tapered out fine after four years. Bundle with annual allowances to maximise without immediate tax.
Q18: How can high-earners use surplus income gifts for business succession?
A18: Regular gifts from excess income are immediately exempt, ideal for funding kids' buy-ins. A director in Birmingham gifted dividends yearly, building their stake tax-free. Prove the surplus with accounts – no dipping into capital – and keep it habitual to stand up to scrutiny.
Q19: What if inheritance tax is disputed due to undervalued assets?
A19: HMRC can reassess up to four years post-death, adding penalties if negligent. A case with undervalued antiques in a Norfolk estate led to 20% fines. Get independent valuations upfront and disclose fully – appeals work if evidence is solid, saving stress for loved ones.
Q20: Can lifetime transfers to disabled trusts avoid the seven-year rule?
A20: Yes, transfers to disabled beneficiary trusts are immediately exempt up to the nil rate band, no waiting. I've seen this protect vulnerable heirs for a client in Liverpool, shielding £325,000 without taper risks. But trustees manage strictly for the beneficiary – a compassionate tool when set right.
About The Author:
Adil Akhtar, ACMA, CGMA, CEO and Chief Accountant of Pro Tax Accountant, is an esteemed tax blog writer with over 10 years of expertise in navigating complex tax matters. For more than three years, his insightful blogs have empowered UK taxpayers with clear, actionable advice. Leading Advantax Accountants as well, Adil blends technical prowess with a passion for demystifying finance, cementing his reputation as a trusted authority in tax education.
Email: adilacma@icloud.com
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