Inheritance Tax Exemptions

Important exemptions that allow you to legally pass your estate on without being taxed

There are some important exemptions that allow you to legally pass your estate on to others – both before and after your death – without its being subject to Inheritance Tax.

Personal Allowance

Everyone, regardless of their domicile, has a personal allowance at which Inheritance Tax is levied at 0% – your Nil Rate Band.  This is currently set at £325,000 (2024/25).

Exempt Assets

Business and Agricultural Property that qualifies for 100% BPR or APR respectively is completely free from Inheritance Tax.  Note that AIM-listed shares also qualify for 100% BPR! Click here for further information.

Exempt Beneficiaries

You can give things away to certain people and organisations without having to pay any Inheritance Tax.  These gifts, which are exempt whether you make them during your lifetime or in your will, and include gifts to:

• your spouse or Civil Partner

Note: There is no IHT on transfers of all assets in excess of the NRB between married couples and couples in a Civil Partnership.  This is true for everyone regardless of their domicility except for the one scenario where the donor is UK domiciled and the recipient is non-UK domiciled.  In this case the value of the transfers in excess of the NRB is not unlimited – it is capped at £325,000, and it is a lifetime allowance.  See our section on Domicile.

• UK charities, UK political parties and some national institutions.

Exempt Gifts

Some gifts are exempt from Inheritance Tax because of the type of gift or the reason for making it.  These include:

• Wedding gifts/Civil Partnership ceremony gifts
  • £5,000 by each parent
  • £2,500 by each grandparent and other relatives
  • £1,000 by others
• Annual Exemptions:
  • £3,000
  • £250 to any number of people (as long as you haven’t used another exemption on the same person)
• Normal expenditure out of net income (not capital), this includes:
  • school fees for grandchildren
  • regular premiums on a life insurance policy (for you or someone else)
  • Maintenance payments to your spouse, ex-spouse, former Civil Partner or relatives who are dependent on you

Potentially Exempt Gifts

If you make a gift to another individual that isn’t covered by the exemptions above then this is a ‘potentially exempt transfer’ (PET).  So long as the donor survives for 7 years after having made the gift and gains no benefit from the asset then the gift is totally free from IHT regardless of value.  Note that taper relief applies if you don’t live the 7 years but do live longer than 3.

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