Inheritance Tax – FAQs Q1. What is Inheritance Tax and at what threshold does it apply? Inheritance Tax (IHT) is a tax on the estate of someone who has died. The standard nil-rate band is £325,000 per person, frozen until April 2030, and a residence nil-rate band of up to £175,000 may be available when the family home passes to direct descendants. Above the combined threshold, IHT is charged at 40%, reducing to 36% if at least 10% of the net estate is left to charity. Spousal transfers are generally fully exempt. Q2. How can married couples maximise their Inheritance Tax allowances? Married couples and civil partners can effectively double their nil-rate bands because any unused allowance transfers to the surviving spouse on the first death. With both standard and residence nil-rate bands combined, a couple can potentially pass on up to £1 million IHT-free if the family home goes to children or grandchildren. Careful will planning is essential to make sure these allowances are not wasted by outdated wills or complex trust structures from earlier years. Q3. What is the seven-year rule for gifts and Inheritance Tax? Most lifetime gifts to individuals fall outside your estate for IHT purposes if you survive seven years from the date of the gift. These are called Potentially Exempt Transfers (PETs). If you die within seven years, the gift is added back into your estate, with taper relief reducing the IHT charge for gifts made between three and seven years before death. Careful records of every gift are essential, which we help clients maintain in a structured gift log. Q4. Are there gifts I can make that are immediately Inheritance Tax-free? Yes. Each tax year you can give £3,000 (the annual exemption), unlimited small gifts of up to £250 per person, wedding gifts within set limits, and gifts to charities or political parties. Most importantly, gifts that form part of your normal expenditure out of surplus income are immediately exempt, regardless of amount, provided they leave you with enough income to maintain your usual standard of living. This last exemption is hugely valuable but often underused. Q5. What is Business Relief and Agricultural Relief? Business Relief (BR) and Agricultural Property Relief (APR) can reduce or eliminate IHT on qualifying business assets and farmland. From April 2026, significant reform takes effect: a new £1 million combined allowance applies to qualifying BR and APR assets, with the relief above that threshold reduced to 50% (an effective 20% IHT rate). AIM-listed shares lose full relief and are also limited to 50%. These changes make pre-April 2026 planning genuinely time-sensitive for many family business owners. Q6. Do I need to pay IHT on my pension? Pensions have historically been outside the IHT estate, but from April 2027 most unused defined contribution pension funds and death benefits will fall within the IHT estate. This is one of the most significant IHT changes in a generation and means many families need to revisit their pension and estate plans now. We help clients model the new rules, consider drawdown strategies, and integrate pensions properly into wider IHT planning before the rules take effect. Q7. How does life insurance help with Inheritance Tax planning? A life insurance policy written into trust pays out directly to your chosen beneficiaries outside your estate, providing them with funds to settle the IHT bill quickly so the family home or business does not have to be sold. Without trust arrangements, the policy proceeds form part of the estate and can themselves attract IHT. Setting up policies in trust correctly is straightforward but often overlooked, and we work with trusted independent financial advisers to make sure it is done properly. Q8. What is the IHT400 form and when is it required? IHT400 is the full Inheritance Tax account that executors must complete for most non-exempt estates valued above the nil-rate band, or where the estate is complex regardless of value. It must be filed within 12 months of the date of death, and any IHT due is generally payable within six months. Atlas Tax Advisors supports executors through the full process, from valuations and IHT400 preparation to HMRC correspondence and obtaining the clearance certificate. Q9. Can charitable giving reduce my Inheritance Tax bill? Yes. Gifts to UK-registered charities are completely exempt from IHT. If you leave at least 10% of your net estate (after deducting allowances) to charity, the IHT rate on the rest of your taxable estate reduces from 40% to 36%. This can mean that leaving more to charity actually leaves more to your family too, depending on the size of the estate. We model the figures carefully so you can make informed, values-led decisions. Q10. When should I start planning for Inheritance Tax? The earlier the better. Most effective IHT planning relies on time, particularly the seven-year rule on gifts and the careful use of allowances year after year. However, it is rarely too late to do something useful. Even within the final few years of life, options such as charitable giving, pension drawdown strategy, ownership restructuring, and use of the normal expenditure exemption can meaningfully reduce a future IHT bill. A confidential review with us is a sensible first step.