Will You Need to Pay Inheritance Tax?

inheritance taxInheritance Tax is a hot topic – in the last financial year, the UK government took in an estimated record of £4.7bn from the estates of the deceased.

Despite new legislation introduced in April 2017 to reduce the number of estates liable for taxation (check out this post from 2016 outlining the inheritance tax changes), this number looks set to hit £6.2bn in the 2021/22 tax year – an increase of around a third.

There’s a huge amount of confusion and misinformation about inheritance tax. In this post, we explain the tax rules, show you how to work out whether your estate will be liable for inheritance tax, and explain how you can protect your family wealth through effective tax planning.

The price of ignorance

A recent (2016) survey by Canada life brought up some interesting and slightly worrying statistics about the level of inheritance tax knowledge amongst people with enough assets to potentially trigger an inheritance tax bill.

Whilst 78% of the people surveyed thought that their wealth should be passed on to the next generation without any tax being due:

  • 61% didn’t know what the inheritance tax threshold was (£325,000)
  • 52% didn’t understand the inheritance tax rate (40%)
  • 24% were unaware that a main home is liable for inheritance tax
  • 28% didn’t know that cash savings and investments were liable
  • 42% of people thought their ISA monies were exempt from inheritance tax
  • 51% didn’t think their pension monies were liable

There were similar gaps in people’s knowledge when it came to estate planning:

  • 90% didn’t know the rate of inheritance tax due if 10% of an estate is left to charity (36%)
  • 61% weren’t aware that they were allowed to give away £3000 each year (£6000 if nothing was given away the previous year) through the annual exemption
  • 32% didn’t know about the 7-year rule (by which gifts made do not count for inheritance tax if the person lives for the next 7 years)

The reality is that inheritance tax isn’t just something the rich pay. Normal families are losing out due to inheritance tax – and a lack of knowledge is one of the core reasons behind this.

What are the rules – is my estate liable for inheritance?

The current (June 2017) inheritance tax rules are as follows:

  • Individuals can pass on assets of up to £325,000 to their chosen family beneficiaries tax-free
  • Married couples and civil partners can transfer unused inheritance tax to their partners, giving them a joint allowance of £650,000
  • All assets above the inheritance tax threshold are subject to inheritance tax at a rate of 40%
  • This rate can be reduced to 36% by leaving at least 10% of the net value of the estate to charity


In April 2017, the family home allowance (Main Residence Nil Band) came into force. This is an additional tax allowance that can be applied to the value of the main home, as long as the property is left to children or grandchildren. It is being phased in over a 4-year period:


  • 2017/18 – £100,000 per person
  • 2018/19 – £125,000 per person
  • 2019/20 – £150,000 per person
  • 2020/21 – £175,000 per person


Couples can share this allowance – which means that in this year, individuals will be able to leave up to £425,000 to their children or grandchildren tax free (assuming their main home is worth at least £100,000) and couples will be able to leave £850,000 (assuming the main home is worth at least £200,000).


What if my estate is worth more?


If your estate is worth more than £425,000 (including a home valued at least £100,000 that you plan to leave to children or grandchildren) it will be liable for inheritance tax, charged at 40%.


Canada Life’s 2016 survey found that those expecting to leave an inheritance would pass on an average of £862,856. Assuming these people all had a home valued at £100,000 or more, the estate would still be £437,856 over the inheritance tax threshold – meaning it would be subject to a tax bill (at 40%) of £175,142.50.


Protecting family wealth with Sterling.


There are proactive steps that families can take to secure more of their wealth for future generations, by structuring their assets correctly and effective tax planning. With the right plan in place, it is possible to mitigate inheritance tax and reduce your obligations, sometimes entirely.


At Sterling, we specialise in providing high quality, cost-effective financial solutions for you, your family and your business. If you’d like further information on the new inheritance tax rules, or honest, personalised advice on any aspect of inheritance tax planning, then get in touch with Sterling today on 01482 863127, or by emailing webenquiries@sterling-partnership.co.uk.

By clicking on one of these links you are departing from the regulatory site of [your company name]. Neither [your company name] nor Intrinsic is responsible for the accuracy of the information contained within the linked site.