When it comes to estate management, inheritance tax can cause confusion when you are looking to protect your assets.

This blog aims to provide clarity on what defines inheritance tax and what you can do to navigate it confidently.

Inheritance tax

Understanding inheritance tax

In the UK and most European countries, inheritance tax is imposed on an individual’s estate following their passing. This tax focuses on the value of the assets left behind and becomes the responsibility of the

Executor of the will. The executor must pay the inheritance tax before the end of the sixth month after the testator’s death.

As per current regulations, the inheritance tax threshold in the UK is set at £325,000. Estates valued below this threshold are exempt. However, any amount surpassing this threshold is subject to a 40% tax rate.

Thresholds and exemptions

Noteworthy exemptions and reliefs, such as the residence nil-rate band and the spouse or civil partner exemption, may apply based on individual circumstances. This means you can pass on everything beyond the £325,000 threshold to your spouse, civil partner, charity, or community entity without paying inheritance tax.

If you gift your home to your children (including adopted, foster, or stepchildren) or grandchildren, your threshold can be raised to £500,000.
However, you may still need to report the estate’s value even if it’s below the threshold or exemptions apply.

If you leave 10% or more of the net value (the estate’s total value minus any debts) to charity in your will, the estate may be eligible for a reduced inheritance tax rate of 36% on certain assets.

Business relief

Business relief decreases the inheritance tax calculation by reducing the value of a business or its assets.

Any business ownership or share is considered part of the estate for inheritance tax.

You can receive either 50% or 100% business relief on certain business assets within the estate, whether passed on during the owner’s lifetime or as part of the will.

Life insurance

Life insurance policies can help with inheritance tax management by providing a lump sum payout upon your death. This amount can contribute to or fully cover the inheritance tax bill if applicable.

Many people place life insurance policies in trust to ensure they are not considered part of their estate.


You can gift within your means, with an ‘annual exemption’ of £3,000. Additionally, you are allowed to give £250 to multiple individuals each year, benefiting estate size reduction, especially if you have grandchildren.

For surplus income, regular gifting is an option without the need to survive seven years. These are lifetime exemptions.

However, for larger amounts, a 7-year survival period is typically necessary for full exemption.

Planning for inheritance tax

Proactive financial planning can mitigate the impact of inheritance tax. You can explore avenues such as gifting assets, establishing trusts, and leveraging available exemptions to reduce the taxable value of the estate.

Seeking guidance from a qualified advisor ensures a tailored and effective inheritance tax plan aligned with the unique circumstances of your business.

Estate tax

In the US, both estate and inheritance taxes exist. The estate tax applies to the assets of the deceased and is covered by the deceased’s estate.

Most countries generally impose either only an estate tax or only an inheritance tax, but there is a potential for double taxation when estates are subject to different taxes in two jurisdictions.

To address this, EU member states have established mechanisms to prevent or alleviate double taxation in such situations.

Get professional help

At Coveney Nicholls we understand the sensitive nature of inheritance tax planning. Our dedicated team will help you work through the process, offering professional guidance to mitigate tax burdens. We prioritise clarity, ensuring full transparency as we work collaboratively to safeguard your business and personal legacy. Trust us to provide personalised solutions, bringing you peace of mind for the future.

Talk to us for inheritance tax support.