Inheritance Tax Planning

Whose wealth is it anyway?

Inheritance tax (IHT) is a tax collected by the Government on any transfer of assets to other people or trusts. It is commonly paid in respect of an individual's estate on death, but it can also be applied in respect of certain transfers of assets during life.

At present, IHT is payable at 40% on all of an individual's estate above a designated threshold - £275,000 (for 2005/06). You don't have to be overly wealthy to achieve this threshold. In today's property climate, your house alone may account for all of this figure.

By use of careful planning you can ensure that IHT is reduced or eliminated altogether - allowing your hard-earned wealth to be passed to your family without the taxman taking a large chunk!

Who is liable for inheritance tax?
It is a mistaken assumption that you need to be particularly wealthy to incur a substantial inheritance tax liability. When you die, the value of your taxable estate is calculated. This is the total value of all your possessions and assets, less any available exemptions and relief. If the taxable estate exceeds the nil rate tax band of £275,000 (for 2005/06), anything over that sum is taxed at 40%.

There is only one tax band; with inheritance tax everyone is a higher rate taxpayer.
We have shown some examples of the impact of the tax below. Alternatively, use our tax calculator to work out what the impact would be on you.

How much IHT could I pay?

Tax Calculator

Size of estate Taxable Amount Tax Payable Net Estate % of Estate Lost in Tax
£275,000 £0 £0 £275,000 0.00%
£300,000 £25,000 £10,000 £290,000 3.33%
£325,000 £50,000 £20,000 £305,000 6.15%
£350,000 £75,000 £30,000 £320,000 8.57%
£375,000 £100,000 £40,000 £335,000 10.67%
£400,000 £125,000 £50,000 £350,000 12.50%
£425,000 £150,000 £60,000 £365,000 14.12%
£450,000 £175,000 £70,000 £380,000 15.56%
£475,000 £200,000 £80,000 £395,000 16.84%
£500,000 £225,000 £90,000 £410,000 18.00%
£525,000 £250,000 £100,000 £425,000 19.05%
£550,000 £275,000 £110,000 £440,000 20.00%
£575,000 £300,000 £120,000 £455,000 20.87%
£600,000 £325,000 £130,000 £470,000 21.67%
£625,000 £350,000 £140,000 £485,000 22.40%
£650,000 £375,000 £150,000 £500,000 23.08%
£675,000 £400,000 £160,000 £515,000 23.70%
£700,000 £425,000 £170,000 £530,000 24.29%
£725,000 £450,000 £180,000 £545,000 24.83%
£750,000 £475,000 £190,000 £560,000 25.33%
£775,000 £500,000 £200,000 £575,000 25.81%
£800,000 £525,000 £210,000 £590,000 26.25%
£825,000 £550,000 £220,000 £605,000 26.67%
£850,000 £575,000 £230,000 £620,000 27.06%
£875,000 £600,000 £240,000 £635,000 27.43%
£900,000 £625,000 £250,000 £650,000 27.78%
£925,000 £650,000 £260,000 £665,000 28.11%
£950,000 £675,000 £270,000 £680,000 28.42%
£975,000 £700,000 £280,000 £695,000 28.72%
£1,000,000 £725,000 £290,000 £710,000 29.00%
£1,250,000 £975,000 £390,000 £860,000 31.20%
£1,500,000 £1,225,000 £490,000 £1,010,000 32.67%
£1,750,000 £1,475,000 £590,000 £1,160,000 33.71%
£2,000,000 £1,725,000 £690,000 £1,310,000 34.50%
£2,250,000 £1,975,000 £790,000 £1,460,000 35.11%
£2,500,000 £2,225,000 £890,000 £1,610,000 35.60%
£3,000,000 £2,725,000 £1,090,000 £1,910,000 36.33%
£3,500,000 £3,225,000 £1,290,000 £2,210,000 36.86%
£4,000,000 £3,725,000 £1,490,000 £2,510,000 37.25%
£4,500,000 £4,225,000 £1,690,000 £2,810,000 37.56%
£5,000,000 £4,725,000 £1,890,000 £3,110,000 37.80%

More impartial information
For general information on inheritance tax, click here to visit the Inland Revenue website.

The information regarding taxation is based on our understanding of current legislation, which may be altered and depends on the individual financial circumstances of the investor.

Page last updated August 22, 2005