Inheritance tax rates
On death, the value of a person's property, with a few exceptions, is subject to inheritance tax. The estate below a threshold, known as the nil rate band, is exempt from inheritance tax, and the excess is taxed according to the table below. During a person's lifetime, transfers of property into a relevant property trust which exceed the available nil rate band are known as chargeable lifetime transfers and subject to tax at a rate in the following table.
|Nil rate band (NRB) £1 - £325,000||0.00%||0.00%||A|
|Over £325,000||40%||40%||B, C|
|Main exemptions||Gifts on marriage|
|Annual gift per donor||£3,000||Parent||£5,000|
|Small gifts per donee||£250||Grandparent/ancestor||£2,500|
|Normal expenditure out of income||Exempt||Other||£1,000|
A Additional residence nil rate band (RNRB) of £175,000 (£150,000 in 2019/20) for transfers of a main residence to direct descendants.
NRB and RNRB for estate of surviving spouses are increased by unutilised percentage of NRB and RNRB of predeceased spouse. RNRB tapers away for estates over £2 million
B Some lifetime gifts are taxed at 20%
C Tax rate reduced to 36% where 10% or more of net chargeable estate is left to charity
Transfers between spouses are free of inheritance tax. Any nil rate band which has not been used on the death of the first spouse transfers to the second spouse to reduce the taxable estate.
The effective rate of inheritance tax is reduced to 36% where more than 10% of the estate is given to charity.
Further information on the exemption for transfers of business property can be read in our article about business property relief.
There is no inheritance tax on a gift which is made more than seven years after a person's death. Where a person dies between three and seven years after making a gift, the full rate of tax is reduce at a rate of 20% per year, as the following table illustrates:
|Time since death||Effective rate of inheritance tax|
|Between three and four years||32%|
|Between four and five years||24%|
|Between five and six years||16%|
|Between six and seven years||8%|
Quick succession relief
Where a person dies within five years of receiving property (whether by a lifetime or death gift) on which inheritance tax has already been paid, the tax due on the estate is reduced by quick succession relief. The inheritance tax liability is calculated as: Tax paid on first transfer × value after tax/value before tax × percentage in the table below
|Time since death||Percentage inheritance tax relief|
|Less than a year||100%|
|Between one and two years||80%|
|Between two and three years||60%|
|Between three and four years||40%|
|Between four and five years||20%|