Jonathan Vowles Chartered Accountants

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Death And Taxes: Specifically, Inheritance Tax

What tax reliefs are available?

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Nothing in life is certain except death and taxes, so what tax reliefs are available? Death duty, or Inheritance Tax to give it an official name, is charged at a rate of 40% on your estate ...

Nothing in life is certain except death and taxes, so what tax reliefs are available?

Nothing in life is certain except death and taxes, so what tax reliefs are available?

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Your 'estate' is the market value of everything you own, less the amount outstanding on your debts. Clearly, a great way to pay less tax is not to own much when you die.

We currently have two allowances that reduce the amount of tax you pay when you die, the ordinary nil rate band and the residence nil rate band.

The ordinary nil rate band:

  1. Currently, the nil rate band is £325,000, meaning estates of up to this much are tax free

  2. Importantly, married couples or civil partners can inherit any unused nil rate band from their deceased spouse or partner

  3. The nil rate band is reduced by any gifts made in the previous seven years

  4. Not all gifts are taken into account when looking at how much ordinary nil rate band is available. There is an annual allowance of £3,000 for small items such as birthday, and Christmas gifts are typically excluded as well. If you are a high earner and usually give large gifts, there is an exemption made out of income. This depends upon the individual's circumstances

The residence nil rate band:

  1. The property needs to qualify as the home of the deceased:

    • They must have owned and lived in the property at some time

    • If they downsized on or after 8 July 2015 and either sold or gave away their home, then they may still get the additional threshold

    • The home doesn't have to be in the UK, but does have to be subject to UK IHT to qualify

  2. The home needs to be inherited by:

    • One or more direct lineal descendants

    • and/or the husband, wife or civil partner of a lineal descendant

    • and/or step-children, adopted children, foster children and children for whom the deceased is a legal guardian.

    • Note, if the home is inherited by a mixture of lineal and non-lineal descendants then the value of the home is shared between them and that part of the value that is inherited by lineal descendants counts.

  3. The home must be inherited, that is:

    • In the will of the person who dies

    • Under the rules of intestacy

    • By some other legal means

  4. The amount of residence nil rate band that is available is the lower of the value of the home that is inherited by lineal descendants or the amount of the additional threshold available when that person dies.

As you can see, the residence nil rate band has several criteria which means it is not always available. However, it is a very useful tax relief and is currently worth £125,000; it is due to increase to £175k over the next two years. Like the ordinary nil rate band, it can be inherited by a spouse or civil partner.

"Would you like to know more?"

Death and Taxes are inevitable, so if you are concerned about the impact of Inheritance Tax on your family, are planning your will, or a loved one has recently died and you would like help then do give me a call on 01234 752 566 or click here to ping me an email and let's see how I can help you.

Until next time ...


More about Jonathan Vowles ...

I've been an accountant in and for business since 1987 and have a wide experience of consultancy, audit, accounts, taxation and wealth planning work from individuals and small businesses to multinational corporations and charities.

My eclectic interests in growing and developing business span a number of areas, which can be summarised as strategic business advice and tax saving advice.

I have worked with the Chamber of Commerce to deliver courses for people about starting up in business and have lectured about tax for a major accountancy practice and for Milton Keynes College.

I relax by reading fiction and by getting away from the office in a campervan.


01234 752 566