Understanding Inheritance Tax

Inheritance tax is a topic that has barely exited the public eye over the past few years. As whispers of increases spread in 2024, there was widely publicised outrage at the “immoral” targeting of generational farms in 2025. It is a passionate area of debate, and beginning to understand it can feel overwhelming.

That said, education is key — both for protecting generational assets and abiding by legal obligations. With the political theatrics aside, here’s what everyone should know about inheritance tax.

 1. What Inheritance Tax Is & Who Pays It

Let’s start small. Inheritance tax is a national system whereby heirs pay a levy on the estate they inherit. In theory, it would impact the vast majority of citizens; the standard rate is 40% and the threshold starts for estates valued at over £325,000. Yet, there are some caveats: not everyone pays inheritance tax.

This fee is waived entirely when estates are left to a spouse, civil partner, or charitable cause. When properties are left to children or grandchildren, the 40% tax still applies, but the threshold increases to £500,000, providing a little extra flexibility.

Own properties abroad? Those classified as long-term UK residents have been affected by the April 2025 shift from domicile-based to residence-based inheritance tax. Put simply, individuals in this scenario now owe inheritance tax on their international assets, not just those in the UK.

 2. Recent Rule Changes and Reliefs to Know

There have been a flurry of developments and rule changes in recent years, which have understandably prompted anxiety. Apart from the April 2025 shift to residence-based inheritance taxation, here’s a quick summary:

• Agricultural business relief will now be capped at £1 million from April 2026
• Pension funds will be classified as taxable estate from April 2027

It’s not all bad news, though. The £325,000 and £500,000 thresholds will be frozen until 2030. Furthermore, according to Martin Lewis, only 6% of estates are currently charged inheritance tax, and this is expected to increase by a further 2% under these rule changes.

 3. Effective Estate Planning Strategies

For those who are concerned about the impact on their loved ones, planning ahead is essential. There are ways to cut that bill and still guarantee security for those you’ll leave behind. For instance, individuals can utilise a capped number of tax-free gift allowances per year or consider charitable donations. A trusted financial advisor can help tailor strategies and ensure regulatory compliance.

 4. When to Take Expert Advice or Make Claims

Knowledge is worth its weight in gold. If you’re unsure about navigating inheritance tax, it’s worthwhile enlisting professional help — even for a peace-of-mind consultation.

It is particularly recommended for those with large estates, complex non-UK assets, or trusts to seek additional guidance. For families navigating the process, it might also be worthwhile researching whether you’ve overpaid inheritance tax. The UK government regularly processes refunds for overpayments.

Inheritance tax is a source of anxiety for many, but it doesn’t have to be complicated. Learn about the rules and regulations, and seek support if unsure.

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Becky

Meet the award-nominated UK lifestyle blogger behind Spirited Puddle Jumper – a mum of three living in South East London! Becky shares the real ups and downs of family life, parenting tips, and lifestyle inspiration, proving that being a mum doesn’t mean you stop being fun or having other interests! Follow along for honest insights into UK family life and opinions on a whole range of topics, from travel and food, to beauty reviews, home and DIY, business and health and wellness.