From the 6 April 2011 the first £325,000 of cumulative chargeable transfers are taxed at NIL rate. Those in excess are taxed at 40% on death, 20% for lifetime transfers. Potentially exempt transfers within 7 years before death are taxed at death rate with tapering relief (see below).

As announced in the 2013 budget, the nil rate band threshold for Inheritance tax (IHT) will be frozen at £325,000 until 2017/18.

Deaths and transfers
2015 / 16
2016 / 17
Nil rate band to
£325,000
£325,000
Rate of tax on balance
40%
40%
Lifetime transfers to and from certain trusts
20%
20%

A reduced IHT rate of 36% will be introduced where 10% or more of the net estate is left to charity.

For married couples and civil partners, the proportion of the nil-rate band unused on the first death is available for use, at the rate then prevailing, on the death of the second spouse or civil partner. Unused proportion of nil-rate band can be transferred to surviving spouse or civil partner.


Lifetime transfers

Gifts to individuals and certain trusts for minor children and the disabled are potentially exempt transfers. If the donor survives seven years the transfers are completely exempt. All other lifetime transfers are chargeable at 20%. Where tax is charged at death on any gift made within seven years of death, taper relief may apply as follows:

Years before death
Death rate tax percentage
0 - 3 years
100%
3 - 4 years
80%
4 - 5 years
60%
5 - 6 years
40%
6 - 7 years
20%


Reliefs and main lifetime exemptions

Reduction in value transferred
Unincorporated business
100%
Unquoted shares in a trading company *
100%
Agricultural relief - working farmer & property let on tenancies starting after 31 August 1995
100%
Agricultural relief - other let property
50%
* Shares quoted on AIM and ISDX are treated as unquoted.

Main exemptions:
Exempt amount:
Transfer between spouses and civil partners
varies (most)
Annual exemption
£3,000 per year
Small gifts exemption
£250 per year
On marriage or civil partnership by parent of either party
£5,000
On marriage or civil partnership by grandparent of either party
£2,500
On marriage or civil partnership by any other person
£1,000
To charities
all gifts