Updated July 2018

Your 5 Minute Guide to Estate Planning

What is Estate Planning?

Estate planning, also known as Inheritance Tax (IHT) Planning, is the process of arranging, during your lifetime, for the management and disposal of your assets during your life and at and after death in the most tax-efficient way. Estate planning can be as simple or complex as your needs dictate.

What is included?

Your 'estate' includes everything that belongs to you or that you own a share in, such as property, investments, insurance, pension payments received, and assets like cars, jewellery or furniture and any non-exempt gifts or Gifts With Reservations you have made. Assets held in a Trust from which you are entitled to benefit will also be included.

whats included in inheritance tax?

* These figures are for illustrative purposes only and are subject to change

What is the inheritance tax allowance band?

No tax is charged on the value of your estate up to the standard ‘Nil Rate Band of £325,000 (2018 /2019). But if your estate includes your home which you intend to pass to a direct descendant you are entitled to an extra allowance of £125,000 (2018/2019) which will increase to £150,000 in the 2019/2020 tax year and to £175,000 in the 2020/2021 tax year.

It starts to be tapered away if your IHT estate is worth more than £2 million on death. Unlike the standard nil rate band, it’s only available for transfers on death. The value of all your assets above that is taxed at 40%.

This reduces to 36% if the estate qualifies for a reduced rate as a result of a charity bequest. Your executors or legal personal representatives typically have six months from the end of the month of death to pay any IHT due.

whats included in inheritance tax?

* These figures are for illustrative purposes only and are subject to change

What are the allowable Exemptions, Transfers and Gifts?

(2018/2019 tax year allowances)

Any part of your estate that you leave to your spouse or civil partner will be exempt from IHT. The exception is if your spouse or civil partner is domiciled outside the UK. Then the maximum you can give them before IHT is made up of an £325,000 inter-spouse exemption and your £325,000 nil rate band (£650,000).

Unmarried partners, no matter how long-standing, have no automatic rights under the IHT rules. If you are a widow or widower and your deceased spouse did not use the whole of his or her Nil Rate Band, the Nil Rate Band applicable at your death can be increased by the percentage of nil rate band unused on the death of your deceased spouse.

  • Any part of your estate that you leave to your spouse or civil partner will be exempt from IHT.


    The exception is if your spouse or civil partner is domiciled outside the UK. Then the maximum you can give them before IHT is made up of an £325,000 inter-spouse exemption and your £325,000 nil rate band (£650,000). Unmarried partners, no matter how long-standing, have no automatic rights under the IHT rules. If you are a widow or widower and your deceased spouse did not use the whole of his or her Nil Rate Band, the Nil Rate Band applicable at your death can be increased by the percentage of nil rate band unused on the death of your deceased spouse.
  • Annual exemption of up to £3,000 each year, either as one or a number of gifts.

    (Unused allowance can be carried over for one tax year.)
  • Small gifts exemption

    Any number of gifts up to £250 (except to those people who may have received all or part of the £3,000 as above).
  • Any amount of excess income

    provided it does not reduce your standard of living and meets certain other criteria.
  • A wedding gift

    £5,000 to a child, £2,500 to a grandchild and £1,000 to anyone else.
  • Donations

    To a registered charity, political parties, universities and certain other organisations recognised by HM Revenue & Customs.
  • Maintenance payments

    To spouses, ex-spouses, elderly / infirm relatives and children under 18 or in full-time education.
  • Potentially Exempt Transfers (PETs)

    You may make larger gifts known as Potentially Exempt Transfers (PETs) but these could attract IHT if you die within seven years of making them. The tax relief applicable works on a sliding scale against the tax due, rather than the value of the gift, which is set when it’s given, not at the time of death.
  • Chargable Lifetime Transfers (CLTs)

    Any other gifts made during your lifetime which do not qualify as above or as a PET will attract IHT. These are known as Chargeable Lifetime Transfers (CLTs) and the taxation rules are complex.
  • Gifts With Reservations

    Any gifts in which you retain an interest (such as a house gifted to a child but in which you still live) will remain in your estate for IHT purposes. These are known as Gifts With Reservations.

Is anyone exempt from Inheritance Tax?

People in certain 'risky' roles, e.g. armed forces personnel, police, firefighters, paramedics and humanitarian aid workers are exempt from paying inheritance tax if they die in active service. The exemption also comes into play if a person who was injured on active service has their death hastened by the injury, even if they're no longer on active service.

who is exempt from inheritance tax?

What can I do to reduce or ease the burden of IHT?

  • Make a Will. This will ensure your estate is divided according to your wishes.
  • Consider setting up a Trust if you are concerned about losing control of your money or assets.
  • If you do not wish to dispose of your assets during your lifetime, you may be able to take out life assurance in trust to cover the estimated IHT liability on death.

Where can I find out more?

Estate (IHT) planning is a complicated area that requires specialist financial advice to reflect your personal circumstances. Please call 01452 623633 to arrange a no-obligation meeting with a qualified Brunsdon Financial Adviser.

This information is intended to provide a general overview of estate / inheritance tax planning and is not comprehensive. It does not offer specific personal advice and is based on our understanding of current taxation, legislation and HM Revenue & Customs practice as at August 2018, all of which may be subject to change. The FCA does not regulate tax advice.

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