In our experience, too many people ignore the issue of inheritance tax. Perhaps not wanting to consider the inevitability of their own demise. At the same time, quite often, family members avoid the subject. It’s perhaps understandable not wanting to seem overly interested in what may become their inheritance.

Unfortunately, both these ways of thinking, though very common, don’t help anyone. The best advice anyone can be given is to deal with inheritance tax as soon as possible. This is the most effective way to secure a better future outcome for loved ones you are leaving behind.

What is Inheritance Tax?

Inheritance Tax (IHT) is a tax on the estate of someone who has died including all property, possessions and money.

Presently the IHT limit for an individual is currently £325,000 and for a married or widowed couple the limit is £650,000. The Government has set out a timetable for these limits to increase over the next few years.

 There is normally no tax to be paid if:

  • The value of your estate is below the IHT threshold of £325,000, or
  • You leave everything to your spouse or civil partner, or
  • You leave everything to an exempt beneficiary such as a charity

If the value of your estate is above the nil rate band (NRB) of £325,000; then the part of your estate that is above this threshold will be liable for tax at the rate of 40%.

How to calculate if Inheritance Tax will be due

If the value of your estate and any gifts made within seven years of your death are more than the nil rate band (and the residence nil rate band, if applicable), IHT will be due at 40%.

The following example illustrates how inheritance tax is calculated on death in a straightforward case.

Example – Janet

Janet dies on 1 May 2018, leaving an estate worth £500,000. She has made no lifetime gifts in the past seven years outside her annual exemption. She leaves her estate in its entirety to her nephews and nieces.

Total estate on death 500,000
Less Nil rate band (325,000)
Balance of taxable estate 175,000
Tax at 40% on £175,000 70,000

IHT thresholds and rates 2018-19

Everyone in the 2018-19 tax year has a tax-free inheritance tax allowance of £325,000 – known as the nil-rate band.  The allowance has remained the same since 2010-11, and it will not rise in 2019-20.

The standard inheritance tax rate is 40% of anything in your estate over the £325,000 threshold.

For example, if you leave behind an estate worth £500,000, the tax bill will be £70,000 (40% on £175,000 – the difference between £500,000 and £325,000).

However, if you’re married or in a civil partnership, you may be able to leave more than this before paying tax.

Main residence nil-rate band

Introduced in April 2017, the main residence nil-rate band is an extra property allowance that allows people to leave their homes to family tax-free.

Under the rules, if you’re passing your home to a direct descendant, you can benefit from an additional £125,000 in tax-free allowance.

At launch, the allowance was £100,000. It is set to increase by £25,000 at the start of each tax year, until it stabilises at £175,000 in April 2020.

The allowance only applies if you leave your home to a direct descendant, either a child or grandchild. Nieces and nephews, or friends, for example do not qualify.

Not everyone qualifies for the full allowance. If your total estate is worth more than £2m, the extra allowance tapers off, falling by £1 for each £2 above the threshold.

Married spouses and civil partners may be able to apply the unused allowance of their deceased partner – meaning they could pass on property worth up to £250,000 tax-free in 2018-19.

Resident Nil Rate Band and combined allowances in coming years



Resident Nil Rate Band


Nil Rate Band


Combined allowances


2018-19 125,000 325,000 450,000
2019-20 150,000 325,000 475,000
2020-21 175,000 325,000 500,000

How you can reduce the amount of tax paid?

  • Leaving your estate to your spouse or civil partner.
  • Set up a trust
  • Leave a gift to charity
  • Take out a Life Insurance Policy
  • Regularly giving away up to £3,000 a year in gifts
  • Paying into a pension instead of a saving account

IHT is not as straightforward as it may first appear; it’s important to get the right kind of advice from an Independent Financial Advisor to guide you, step by step, through the maze and detail your best options.

Making sure your spouse and family benefit financially after you die takes careful thought and consideration. It also means receiving the best advice and guidance from an Independent Financial Adviser who understands how Inheritance Tax works.

At Portfolio, we’ll create clarity around the issue and help you to dispel financial myths, develop an accurate understanding of inheritance tax, and find an appropriate balance for you.

If you should like to speak to one of our advisers regarding IHT or receive a review of your current situation please call our Swansea office on 01792 483860 or email: