Do I need to think about Inheritance Tax when deciding my legacy?

Do I need to think about Inheritance Tax when deciding my legacy?


If you’re thinking of leaving something to your loved ones, you may need to consider how Inheritance Tax might affect that total.

When it comes to leaving something to family or chosen heirs in a Will, there’s a lot to consider.

For some, the estate that they intend to pass down to family may very well be subject to something called Inheritance Tax (IHT).

Today, the HWIFM blog is exploring the ins and outs of IHT, including how you might make arrangements to owe less of it.

What is Inheritance Tax?

IHT is a tax that is payable on the value of the estate of someone who has died. The estate includes all property, possessions and any money.

IHT was brought in to avoid the perpetuation of inherited wealth and to allow income to be redistributed for the benefit of all. A valid counterpoint, however, is that income made when the person was alive was already taxed, so to tax the income again is unfair.

Regardless of the politics, IHT is a financial fact and is a significant concern for people who wish to leave the vast majority of their estate to a loved one.

Does everyone need to pay Inheritance Tax?

Only a minority of people’s estates are subject to IHT because the tax only kicks in if the value of your estate is over £325,000. Even if your estate is worth over £325,000 (a figure known as the Nil Rate Band (NRB)), there is normally no tax to be paid if:

  • You leave everything over the NRB to your spouse or civil partner.
  • You leave everything over the NRB to a beneficiary who is exempt from tax, such as a charity.
  • If you choose to leave your home to your children (or grandchildren), the NRB threshold can increase to £500,000.


However, this isn’t always the rule. For example, if you’re widowed or your civil partner has died, your NRB might be increased. IHT is admittedly a very complex field, which is why Independent Financial Advisors like HWIFM offer advice and guidance on the subject to help people navigate it with confidence.

How much is Inheritance Tax?

The way IHT is calculated is fairly straightforward. In most cases, if the value of your estate is over £325,000 (the NRB), the amount above that threshold could be liable for tax at the rate of 40 per cent.

Say someone’s estate was worth £600,000 on their death and they intended their estate to be passed onto their child. £325,000 would automatically go to their child and not be taxed.

However, the remaining £275,000 would be liable for IHT, taxed at a rate of 40 per cent. This means that £110,000 would be billed as tax.

There are other factors that could affect how much IHT is owed. As mentioned, if you are the surviving partner in a marriage or civil partnership, you can sometimes ‘inherit’ your late partner’s NRB, essentially doubling your threshold to £650,000.

The government has also recently introduced the Residence Nil Rate Band (RNRB). If you were to pass your home or a share of it to your children, your overall NRB increases – which may mean less IHT to pay.

How is my estate valued when calculating Inheritance Tax?

Knowing how much your estate is worth can be useful when estimating whether IHT will affect that total and, if so, by how much.

Your estate is calculated by listing all of your assets and deducting any debts or liabilities that might affect that total. Your estate will include things like property, money, cars, jewellery, and pay-outs from any insurance policies that weren’t written in trust.

Gifts that were given away within seven years of your death will also be included in the total, unless they were exempt gifts. There are other circumstances that need to be considered to figure out the exact value of your estate, which is why it can be helpful to seek advice on the topic.

Can I reduce the amount of Inheritance Tax paid?

The short answer is: yes, it’s possible to reduce your IHT bill. This is often achieved by:

  • leaving your estate to your spouse or civil partner
  • putting assets into a trust for your chosen heir(s)
  • paying into a pension, rather than living off savings
  • leaving money to a charity.

However, it tends to be more complicated in practice. IHT is admittedly a complex subject, requiring big decisions to be made about your estate. IHT is also not the only type of tax your legacy might be subject to, so there could be more to consider. Like any financial decision, it’s best to be in possession of all the facts before making it.

Whether you’re thinking about leaving a legacy as part of a Will, or you’d like to learn more about how IHT might affect you and your estate, don’t hesitate to speak to our dedicated and highly knowledgeable team today.

Please call our team on 01606 338914 or email