Should you be worried about Inheritance Tax?

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“Inheritance Tax is something only ‘rich’ people have to pay”, may be the response most people would make and yet it might be closer to being a part of your life than you think.

Inheritance Tax (IHT) is a tax on the estate of someone who has died, including all property, possessions, and money. The standard IHT rate is 40%1.  It is charged on the part of your estate that is above the tax-free threshold which is currently £325,000. If you leave your main home to children or grandchildren, you could benefit from an additional £175,000 allowance.2

However, it was announced in the 2021 budget that the IHT thresholds would be frozen until 2026. That five-year freeze is significant, and it is advisable to review your situation in light of this announcement because currently, although only 3.7% of UK deaths in 2018/192 resulted in an IHT charge, if property prices continue to rise as they have in recent years, then this may mean more estates are pushed over the allowance threshold.3

If we factor in the increasing value of property and the potential of inheriting during your lifetime, the risk merits a review with an adviser. However, there are actions you can take to reduce or even eliminate the threat.

  • Potentially exempt transfer (PET)

You can make a gift or make a transfer of ownership, which, provided you survive for a further seven years has the potential to be exempt if you survive seven years from the date of the gift. If you die within seven years, the PET becomes potentially chargeable and is added to the value of your estate to calculate an IHT liability. However, it may benefit from a reduction in tax depending on the number of years the individual survived since the gift was made.

  • Leave a legacy to charity
  • Put your assets into a trust for your heirs
  • Leave your estate to your spouse or civil partner
  • Pay money into a pension instead of a savings account
  • You can give away a total of £3,000 worth of gifts each tax year without them being added to the value of your estate. This is known as your ‘annual exemption’. You can give gifts or money up to £3,000 to one person or split the £3,000 between several people.1

As every situation is different, it is important to seek independent tax advice from your financial adviser or from an accountant to ensure that your individual situation is assessed correctly.


  1. (2022) How Inheritance Tax Works. Available at: (Accessed 26th April 2022)

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