• Contact
  • Accountants: +44 (0) 1753 551111
  • Solicitors: +44 (0) 20 7067 4300

Inheritance tax (IHT) is charged on the gifting of assets by individuals during their lifetime and at death.  A UK domiciliary is taxable on his worldwide assets whereas a non-domiciliary is taxed only on his UK situs assets. Individuals who have been resident in the UK for 16 tax years are classified as UK domiciled from the beginning of the 17th tax year. As from 6th April 2017 this will be from the beginning of the 16th tax year.

All lifetime transfers are treated as potentially exempt transfers (PETs) unless the transfer is to a trust in which case it is a chargeable transfer.

The rate of tax is 40% on transfers at death and 20% on chargeable lifetime transfers.


  • All transfers where the donor survives 7 years from the date of the gift are wholly exempt unless it is a transfer to a trust.
  • Transfers up to a value of £325,000 (the nil rate band - NRB) per person are charged at 0%. The amount of any spouse’s unused NRB at death can be claimed by the surviving spouse.
  • For estates of less than £2.0m an additional NRB is being phased in as from 6th April 2017 for main residences. For 2019/20 it will be £150,000 per person and rising to £175,000 by 2020/21.
  • Annual exemption of £3,000. Unused exemption can be carried forward one year.
  • Small gifts, under £250 per recipient.
  • Normal expenditure out of income is not treated as a transfer of value. Donor needs to have sufficient retained income to live and any gifts out of income must form a regular pattern.
  • Gifts in consideration of marriage, depending upon relationship between donor and recipient, between £5,000 and £1,000.
  • Transfers to a spouse are wholly exempt unless the donee spouse is not domiciled in the UK in which case the exemption is restricted to £325,000.
  • Gifts to registered charities and political parties are wholly exempt.


There are two key reliefs for IHT, one for Business Property and one for Agricultural Property, both of which give relief at either 50% or 100%.

Business Property Relief (BPR)

50% relief for:

  • Shares in a listed company transferred by a controlling shareholder.
  • Assets used in a company controlled by the transferor.

100% relief for:

  • Shares in an unlisted trading company.
  • Business carried on by a sole trader.
  • Interest in a business, e.g. share in a partnership.

Only trading businesses/companies are eligible for BPR. Investment companies do not qualify. Relief is restricted if a trading company has substantial (broadly speaking over 20%) non-trading assets or activities.

In order to qualify for the relief the property/shares must have been held for a minimum two year period immediately prior to the transfer.

Agricultural Property Relief

50% relief for:

  • Certain tenanted agricultural land where vacant possession cannot be attained within 24 months.

100% relief for:

  • Agricultural land, except as described above.

Agricultural land can include farm houses and other farm buildings as well as pasture and woodland.

The property must have been held for a two year period immediately prior to the transfer. This increases to seven years in the case of tenanted agricultural land.

Potentially exempt transfers (PETs):

A PET is a transfer that will be subject to IHT if the transferor dies within seven years of the transfer. This prevents tax being avoided by individuals gifting their assets in the period before death. Transfers of an asset where the transferor retains any form of interest in it are completely ineffective.

Gifts may also be subject to capital gains tax based on market value, so careful consideration is needed before attempting to mitigate IHT by way of gifts of assets.


Disclaimer: This note does not contain a full statement of the law and it does not constitute legal advice. Please seek legal advice if you have any questions about the information set out above.

  • Member of London Partners
  • Member of London of Chamber Commerce and Industry
  • The Royal South Bucks Agricultural Association
  • The Association for UK Interactive Entertainment
  • Offical Xero Partner

Copyright © 2013 - Oury Clark.