Estate Planning
Inheritance Tax Planning
Inheritance Tax can take up to 40% of everything you leave behind. With careful planning, many families can significantly reduce — or even eliminate — their IHT liability. Independent, whole-of-market advice from SBC Financial.
What Is Inheritance Tax?
Inheritance Tax (IHT) is a tax charged on the estate of a person who has died. In the UK, IHT is levied at a rate of 40% on the value of an estate that exceeds the available tax-free allowances. A reduced rate of 36% applies where at least 10% of the net estate is left to charity.
IHT is paid by the estate before assets are distributed to beneficiaries — meaning your loved ones may receive significantly less than you intended. With UK property values having risen substantially over recent decades, and the nil-rate band frozen since 2009, an increasing number of ordinary families are now caught by IHT for the first time.
The good news is that with the right advice and early planning, there are many legitimate strategies available to reduce your estate's IHT exposure. SBC Financial provides independent, whole-of-market advice on IHT planning — working alongside your solicitor and accountant where appropriate to ensure a joined-up approach.
Upcoming Rule Change — April 2027
Pensions to Be Brought Into IHT from April 2027
Currently, pension funds are outside of your estate for IHT purposes. From 6 April 2027, unused pension funds and death benefits will be brought within the scope of IHT. This is a significant change that may affect your estate planning strategy — particularly if you have substantial pension savings. Speak to one of our advisers to review the impact on your estate.
IHT Allowances & Exemptions
Understanding the allowances available is the starting point for any IHT plan. Here are the key thresholds and exemptions for the 2024/25 tax year.
Nil-Rate Band (NRB)
£325,000The standard threshold below which no IHT is charged. Applies to every individual. Has been frozen at this level since 2009 and is set to remain frozen until at least April 2030.
Residence Nil-Rate Band (RNRB)
£175,000An additional allowance available when a main residence is passed to direct descendants (children, grandchildren). Tapers away for estates worth more than £2 million (reduced by £1 for every £2 over the threshold).
Spouse / Civil Partner Exemption
UnlimitedAssets passed between spouses or civil partners on death are completely exempt from IHT, regardless of value. Unused NRB and RNRB can also be transferred to the surviving spouse.
Annual Gift Exemption
£3,000/yearYou can give away up to £3,000 per tax year free from IHT. Unused allowance can be carried forward one year only, giving a maximum of £6,000 in a single year.
Small Gifts Exemption
£250/personYou can give up to £250 to any number of individuals per tax year, completely free from IHT — as long as you haven't used another exemption for the same person.
Normal Expenditure Out of Income
UnlimitedRegular gifts made from surplus income (not capital) can be exempt from IHT if they form part of your normal expenditure and don't reduce your standard of living. Careful record-keeping is essential.
Worked Examples
The following examples illustrate how IHT is calculated in different scenarios. All figures are based on 2024/25 allowances.
Example 1: Single Person
| Estate value (property + savings + investments) | £600,000 |
| Less: Nil-Rate Band (NRB) | − £325,000 |
| Less: Residence Nil-Rate Band (RNRB) — passing home to children | − £175,000 |
| Taxable estate | £100,000 |
| IHT at 40% | £40,000 |
Example 2: Married Couple (First Death)
| Spouse A dies, leaving entire estate to Spouse B | |
| IHT on transfer to spouse | £0 (spouse exemption) |
| Unused NRB transferred to Spouse B | £325,000 |
| Unused RNRB transferred to Spouse B | £175,000 |
Example 3: Married Couple (Second Death)
| Combined estate on second death (property + assets) | £1,200,000 |
| Less: Spouse B's own NRB | − £325,000 |
| Less: Transferred NRB from Spouse A | − £325,000 |
| Less: Spouse B's own RNRB (passing home to children) | − £175,000 |
| Less: Transferred RNRB from Spouse A | − £175,000 |
| Total allowances | £1,000,000 |
| Taxable estate | £200,000 |
| IHT at 40% | £80,000 |
Example 4: RNRB Taper (Large Estate)
| Estate value | £2,400,000 |
| RNRB taper threshold | £2,000,000 |
| Amount over threshold | £400,000 |
| RNRB reduction (£1 for every £2 over) | − £200,000 |
| Available RNRB | £0 (fully tapered away) |
| Available NRB only | £325,000 |
| Taxable estate | £2,075,000 |
| IHT at 40% | £830,000 |
These are simplified illustrations only. Individual circumstances vary and professional advice should always be sought before making any financial decisions.
Maximum Tax-Free Allowances at a Glance
Single Person
*RNRB applies only when a qualifying residence is passed to direct descendants and the estate is below £2m.
Married Couple / Civil Partners
*Both RNRB allowances are only available if a qualifying residence is passed to direct descendants on the second death. RNRB tapers away for estates over £2m.
How We Help Reduce Your IHT Liability
There is no single solution to IHT — the right strategy depends on your estate, family circumstances and objectives. We take a holistic view and advise on the full range of options available.
Gifting
Making use of annual exemptions, potentially exempt transfers (PETs) and gifts out of income to reduce the taxable estate over time.
Trusts
Placing assets in trust can remove them from your estate while retaining some control over how and when beneficiaries receive funds.
Investment Bonds in Trust
Offshore or onshore investment bonds written in trust can be an effective way to pass wealth to beneficiaries outside of your estate.
Maximising the RNRB
Ensuring your will and estate plan are structured to claim the full Residence Nil-Rate Band — including transferred allowances from a deceased spouse.
Business & Agricultural Relief
Qualifying business assets and agricultural property can attract 50–100% IHT relief. We advise on eligibility and structuring.
Pension Planning
Pensions are currently outside of your estate for IHT purposes (though this is changing from April 2027). We advise on how to use pension assets tax-efficiently in later life.
The Seven-Year Rule & Potentially Exempt Transfers
Gifts made during your lifetime that do not fall within an annual exemption are known as Potentially Exempt Transfers (PETs). A PET becomes fully exempt from IHT if you survive for seven years after making the gift. If you die within seven years, the gift may be subject to IHT — but taper relief reduces the tax payable on gifts made between three and seven years before death.
| Years Between Gift & Death | Taper Relief | Effective IHT Rate |
|---|---|---|
| Less than 3 years | 0% | 40% |
| 3–4 years | 20% | 32% |
| 4–5 years | 40% | 24% |
| 5–6 years | 60% | 16% |
| 6–7 years | 80% | 8% |
| 7+ years | 100% | 0% (fully exempt) |
Taper relief only applies where the total value of chargeable gifts in the seven years before death exceeds the nil-rate band. It reduces the tax on the gift, not the value of the gift itself.
Why Early Planning Matters
Many IHT strategies — particularly gifting and trusts — require time to be effective. The seven-year rule means the sooner you act, the greater the potential saving.
The nil-rate band has been frozen since 2009 and is set to remain frozen until at least April 2030. As property values and investment portfolios grow, more estates are being drawn into the IHT net.
From April 2027, unused pension funds will be brought within the scope of IHT — a significant change for those with substantial pension savings.
A well-structured will is the foundation of any IHT plan. Without one, your estate may not benefit from the full range of allowances available.
IHT planning should be reviewed regularly as your circumstances, family situation and the rules themselves change over time.
Protect What You've Built
An IHT review with SBC Financial starts with understanding your estate, your family and your goals — then building a plan that makes the most of every allowance available to you.
Book an IHT ReviewImportant: Inheritance Tax rules are complex and subject to change. The information on this page is based on current UK legislation and HMRC guidance for the 2024/25 tax year and is intended as a general guide only. It does not constitute personal financial, legal or tax advice. You should always seek independent professional advice before making any decisions about your estate. SBC Financial is authorised and regulated by the Financial Conduct Authority (FCA reference 997666).