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Inheritance Tax UK
Hoxton Tax • Inheritance Tax UK
Inheritance Tax
Inheritance Tax (IHT) is a UK tax charged on the transfer of wealth, whether during lifetime or on death. It is a complex area of UK taxation, particularly for individuals and families with varied asset profiles.
At its core, IHT is charged at a standard rate of 40% on the value of an estate above available allowances, including the nil rate band and, where applicable, the residence nil rate band.
The scope of IHT depends on an individual’s status. Those who are UK domiciled or fall within the Long-Term Resident (LTR) framework may be subject to IHT on their worldwide estate, whereas others are typically exposed only to UK-situated assets.
There are, however, a number of important reliefs and exemptions available within the UK regime. These include reliefs for certain types of business and agricultural assets, which can significantly reduce or eliminate IHT exposure where conditions are met. In addition, transfers between spouses are generally exempt, and lifetime gifting can, over time, fall outside of the estate.
IHT planning therefore often focuses on the nature of assets held, ownership structures, and the timing of transfers. With careful planning, it is possible to preserve wealth across generations while remaining aligned with UK tax legislation.
How does this impact you?
Inheritance Tax is typically charged at 40% on the value of your worldwide estate above available allowances at the time of death.
In some cases, lifetime transfers may also give rise to IHT if specific conditions are not met.
There are a number of key allowances available on death, including:
Nil Rate Band (£325,000) – available to most individuals
Residence Nil Rate Band (up to £175,000) – where a main residence is passed to direct descendants
Spousal exemption – transfers between spouses are generally exempt
Unused allowances may also be transferable between spouses, potentially increasing the total available on second death.
Certain allowances also exist in an individuals lifetime and used effectively, can help reduce the value of an estate.
Transfers between spouses are typically free from IHT, meaning no tax is due on first death.
However, this often defers rather than removes the liability. On second death, the combined estate may be subject to IHT.
The exception to this will however be where spouses have different long-term residence (LTR) status’, and this can materially impact the overall IHT position.
Gifting can be an effective way to reduce your estate for IHT purposes.
Broadly, gifts may fall outside your estate if you survive seven years from the date of the gift, although relief may be available where this period is not fully met.
There are also annual exemptions and other specific gifting allowances. However, the rules are complex, particularly where you continue to benefit from the asset.
Certain business assets may qualify for Business Relief (BR), which can reduce their value for IHT purposes by up to 100%.
While there has been ongoing discussion around potential changes to these reliefs, they currently remain a key feature of UK IHT planning, however are reduced substantially from 6 April 2026.
Planning should not focus solely on securing relief. It is equally important to consider succession, long-term ownership, and cash flow, to ensure the business can continue to operate effectively across generations.
Pensions have historically been structured to sit outside of an individual’s estate for IHT purposes, making them an efficient succession planning tool.
However, from 6 April 2027, changes are expected to bring many pension funds within the scope of IHT, which may significantly alter their role in estate planning.
This is an area of particular complexity. If you gift your home but continue to live in it without paying a full market rent, it is likely to be treated as a “gift with reservation of benefit”.
In these cases, the property may still be included within your estate for IHT purposes.
Trusts and Family Investment Companies (FICs) can form part of a broader IHT planning strategy.
They may assist with control, succession planning, and long-term wealth structuring, but their effectiveness depends on individual circumstances and must be carefully implemented.
Why Hoxton?
Inheritance Tax planning is not simply about reducing a liability—it is about protecting wealth, preserving control, and planning for the future.
We work closely with individuals and families to deliver clear, considered advice, aligned to their personal circumstances and long-term objectives.
We help clients:
IHT modelling – Projecting potential inheritance tax exposure under different scenarios to support informed decision-making and long-term planning.
Lifetime gifting strategies – Advising on the timing, structure, and tax implications of gifts to manage exposure while maintaining appropriate control.
Family Investment Company structuring – Designing and implementing FIC arrangements to support succession planning, control, and tax-efficient wealth preservation.
Liquidity and insurance planning – Assessing potential liabilities and ensuring appropriate funding solutions are in place to meet future IHT obligations.
Business Property Relief analysis – Reviewing business activities and structures to determine eligibility for relief and optimise outcomes where available.
Agricultural Relief planning – Advising on the availability and preservation of relief on qualifying agricultural assets within the estate.
Case Study: Structuring a UK Estate for Long-Term Succession
An individual with a substantial UK estate including a family home, two pension arrangements, and a portfolio of three rental properties. They were concerned about their potential Inheritance Tax (IHT) exposure and how best to pass wealth to the next generation.
Our initial modelling highlighted a significant IHT liability at 40%, particularly when factoring in the post-6 April 2027 position, where pension funds are expected to fall within the scope of the estate. This materially increased the overall exposure and reinforced the need for a structured approach.
We worked with the client to:
- Model their estate in detail, breaking down the IHT exposure across each asset class
- Reduce the estate below key thresholds, including the £2 million level to preserve access to the residence nil rate band
- Implement a lifetime gifting strategy, supporting the gradual transfer of the rental portfolio to the next generation
- Establish a Family Investment Company (FIC), allowing the client to retain control while involving their children in long-term wealth planning
- Support financial education, helping the next generation understand both the assets and the responsibilities attached to them
The result was a reduced IHT exposure, improved succession planning, and a structure that allowed the client to continue benefiting from investment income while gradually transitioning wealth.
How Can We Help You?
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