TL;DR
UK estate planning combines a will, lifetime gifts, trusts, and beneficiary nominations to pass wealth to chosen beneficiaries while managing inheritance tax. The IHT nil-rate band of GBP 325,000 and residence nil-rate band of up to GBP 175,000 are key allowances; the 40 percent IHT rate applies above the available bands.
Key facts
- IHT nil-rate band: GBP 325,000 per individual (frozen until 2030).
- Residence nil-rate band: up to GBP 175,000 where a main home passes to direct descendants.
- Both nil-rate bands are transferable between spouses and civil partners.
- IHT rate above the available bands is 40 percent (or 36 percent if at least 10 percent of the estate is left to charity).
- Lifetime gifts above the GBP 3,000 annual exemption fall outside the estate after 7 years.
The IHT framework
UK inheritance tax is charged at 40 percent on estates above the available nil-rate bands. The standard nil-rate band is GBP 325,000 per individual. The residence nil-rate band adds up to GBP 175,000 where a main home passes to direct descendants (children, grandchildren, step-children, foster children, adopted children, and further descent). Both bands are transferable between spouses and civil partners.
The maximum band for a couple
A married couple or civil partners can combine their allowances to shelter up to GBP 1 million on the second death: GBP 325,000 + GBP 325,000 (nil-rate band, transferred) + GBP 175,000 + GBP 175,000 (residence nil-rate band, transferred). The full sum is available only if the residence nil-rate band conditions are met (main home passing to direct descendants).
Residence nil-rate band taper
The residence nil-rate band is tapered where the estate exceeds GBP 2 million, reducing by GBP 1 for every GBP 2 of estate value above that threshold. The taper can extinguish the RNRB entirely for very large estates.
Spouse exemption
Transfers between UK-resident spouses are exempt from IHT without limit. Before 6 April 2025 the spouse exemption between UK-domiciled and non-UK-domiciled spouses was capped at the nil-rate band of GBP 325,000 unless the non-domiciled spouse elected to be UK-domiciled. The April 2025 reform replaced the domicile concept with residence-based testing.
Lifetime gifts
Gifts during lifetime above the annual exemptions are potentially exempt transfers (PETs) and fall outside the estate after 7 years. Gifts made between 3 and 7 years before death benefit from taper relief on any tax above the nil-rate band.
Annual exemptions
Each individual has a GBP 3,000 annual gift exemption (can be carried forward one year if unused). Small gifts of up to GBP 250 per person are exempt without using the annual exemption. Wedding gifts have specific limits depending on relationship. Gifts out of normal expenditure from surplus income (after the donor's reasonable standard of living) are exempt without time limit if they meet the conditions.
Pensions and IHT
Most defined contribution pensions have historically been outside the estate for IHT. The Autumn Statement 2024 announced changes from April 2027 to bring most unused pension funds and death benefits within the IHT regime; the detail is being implemented through legislation and regulations.
Trusts
UK trusts are used to control how assets pass to beneficiaries. Common types include bare trusts (beneficiary has an immediate absolute interest), interest in possession trusts (beneficiary has a right to income), discretionary trusts (trustees decide who benefits), and life interest trusts (someone has a right to occupy or receive income while capital passes to others later).
Business and agricultural reliefs
Business Property Relief (BPR) and Agricultural Property Relief (APR) can reduce the IHT value of qualifying business or agricultural assets by 50 or 100 percent. The Autumn Statement 2024 announced reforms to these reliefs from April 2026, including a GBP 1 million cap on combined 100 percent BPR/APR (the legislation is being implemented).
Charitable giving
Gifts to UK charities are exempt from IHT without limit. Where at least 10 percent of the estate (after exemptions and the nil-rate band) is left to charity, the IHT rate on the rest of the estate falls to 36 percent from 40 percent.
Life cover written in trust
Life cover policies written in trust pay out outside the estate and provide liquidity for the family to fund any IHT bill due on the home or other illiquid assets within 6 months of death.
The IHT regime: rates, bands, and reliefs
UK inheritance tax is charged at 40 percent on estates above the available nil-rate bands under the Inheritance Tax Act 1984. The standard nil-rate band is GBP 325,000 per individual, frozen until 2030 under successive Budget announcements. The residence nil-rate band (RNRB) of up to GBP 175,000 applies where a qualifying residential interest passes to direct descendants on death.
Both bands are transferable between spouses and civil partners. A married couple or civil partners can therefore shelter up to GBP 1 million on the second death where the home passes to direct descendants. The RNRB tapers above GBP 2 million of estate value, reducing by GBP 1 for every GBP 2 of estate over the threshold and being extinguished entirely for estates above GBP 2.35 million (or GBP 2.7 million in the transferable case).
Where at least 10 percent of the estate (after exemptions and the nil-rate band) is left to charity, the IHT rate on the rest of the estate falls to 36 percent from 40 percent. The reduced rate is intended to incentivise charitable legacy planning and has been used widely since its introduction in 2012.
Lifetime gifts and the 7-year rule
Gifts during lifetime above the annual exemptions are potentially exempt transfers (PETs) and fall outside the estate after 7 years. Gifts made between 3 and 7 years before death benefit from taper relief on any tax above the available nil-rate band: 20 percent reduction in IHT for gifts 3 to 4 years before death, rising to 80 percent reduction for gifts 6 to 7 years before death.
The annual exemptions cover smaller gifts without using the 7-year clock. Each individual has a GBP 3,000 annual exemption per tax year (which can be carried forward one year if unused). Small gifts up to GBP 250 per recipient per tax year are exempt. Wedding gifts are exempt: GBP 5,000 from each parent to a child marrying, GBP 2,500 from grandparents, GBP 1,000 from anyone else.
Gifts out of normal expenditure from surplus income are exempt without time limit if the donor establishes a regular pattern and retains a reasonable standard of living. The exemption is particularly useful for high earners with surplus income they wish to pass to family on a regular basis. Documentation establishing the regular pattern is essential for the exemption to apply in practice.
Business Property Relief and Agricultural Property Relief
Business Property Relief (BPR) reduces the IHT value of qualifying business assets by 50 or 100 percent. The 100 percent relief applies to interests in an unincorporated business, shares in an unquoted trading company, and shares in a quoted trading company where the deceased had control. The 50 percent relief applies to controlling shareholdings in quoted trading companies and certain other assets used in a business.
Agricultural Property Relief (APR) reduces the IHT value of agricultural property by 100 or 50 percent. The 100 percent relief generally applies to owner-occupied farmland; the 50 percent relief applies to tenanted farmland under certain conditions. The relief covers the agricultural value, not necessarily the full market value where development potential exists.
The Autumn Statement 2024 announced reforms to BPR and APR from April 2026, including a GBP 1 million combined cap on 100 percent BPR/APR. Above the cap, relief reduces to 50 percent. The reforms are being implemented through Finance Bill legislation and are expected to reshape estate planning for business owners and farmers significantly.
Wills, intestacy, and probate
A UK will must be in writing, signed by the testator, and witnessed by two adults present at the same time under section 9 of the Wills Act 1837. Beneficiary witnesses (or their spouses) invalidate the gift to the beneficiary under section 15, though the rest of the will stands. Marriage automatically revokes a prior will unless made in contemplation of the new marriage; divorce treats gifts to the former spouse as if they predeceased.
Intestacy rules under the Administration of Estates Act 1925 (as amended) follow a statutory hierarchy where there is no valid will: spouse and civil partner first with a statutory legacy of GBP 322,000 for deaths from 26 July 2023; then biological and adopted children sharing the residue; then more remote relatives. Step-children are not included in the intestacy hierarchy.
Probate is the process of obtaining authority to administer the estate. The executors named in the will apply to the Probate Registry; where there is no will, letters of administration are granted to the next-of-kin. The Probate Registry application fee is GBP 300 from January 2022 for estates above GBP 5,000. Solicitor probate fees typically run from 1 to 3 percent of estate value for full probate services.
Trusts in estate planning
UK trusts are widely used in estate planning. Bare trusts give the beneficiary an immediate absolute interest. Interest in possession trusts give a beneficiary a right to income with capital passing later. Discretionary trusts give trustees discretion over which beneficiaries to benefit and when. Most lifetime trusts (other than bare trusts and disabled persons trusts) fall within the relevant property regime: entry charges of up to 20 percent on creation, periodic 10-year charges of up to 6 percent, and proportionate exit charges.
Will trusts (created on death by the will) include life interest trusts giving a surviving spouse a right to occupy the family home with capital passing to children later, and discretionary trusts giving trustees flexibility over how the estate is distributed. Will trusts have their own tax treatment that depends on the structure.
The Trust Registration Service operated by HMRC under the EU Fifth Money Laundering Directive requires most UK trusts to register with HMRC. Beneficial ownership information is held on the register, accessible to law enforcement and certain other authorities. Limited exemptions apply for some trust types.
Cross-border estate planning
UK residents with assets in multiple jurisdictions face overlapping inheritance and succession rules. The general English rule is that immovable property (land and buildings) follows the law of the country where it is located, while movable property (financial assets, personal effects) follows the law of the deceased's last domicile. From 6 April 2025 the UK moved from a domicile basis to a residence basis for IHT, with the long-term residence test (10 of last 20 years) replacing deemed domicile.
The EU Succession Regulation (EU 650/2012) allows individuals to elect for the law of their nationality to apply to their estate, potentially avoiding forced heirship rules in EU member states. The Regulation does not apply in the UK but applies to UK citizens with assets in EU member states. Specialist cross-border estate planning advice is essential for individuals with material foreign assets.
UK probate of an estate with foreign assets typically requires separate grants in each country. Mirror wills (separate wills in each jurisdiction drafted by local lawyers, harmonised so that neither revokes the other) are the standard approach. Apostille certification under the Hague Apostille Convention 1961 facilitates cross-border recognition of probate documents.
Funeral planning and end-of-life arrangements
Funeral planning is increasingly handled through prepaid funeral plans regulated by the FCA from 29 July 2022. Plans must meet specific consumer protection standards including ring-fencing of customer funds and clear disclosure of what is covered. The FCA Register at register.fca.org.uk lists authorised funeral plan providers.
Average UK funeral costs vary substantially by region and type. SunLife's annual Cost of Dying report tracks the average; figures published for recent years have placed basic funerals between GBP 3,500 and GBP 4,500, with additional costs for memorials, wakes, and other elements. Cremation and direct cremation options are typically lower-cost than burial.
Disclaimer
This article provides general information on UK estate planning and is not personal tax or legal advice. Estate planning is highly fact-sensitive; professional advice is recommended for material estates.
Frequently asked questions
What is the IHT nil-rate band?
GBP 325,000 per individual, frozen until 2030. Above this (plus the residence nil-rate band where applicable), IHT applies at 40 percent.
Are pensions outside the estate for IHT?
Most DC pensions have historically been outside the estate. Changes announced for April 2027 will bring most unused pension funds within the IHT regime.
How do lifetime gifts work?
Gifts above annual exemptions fall outside the estate after 7 years. Taper relief reduces IHT on gifts made 3 to 7 years before death.
What is the residence nil-rate band?
An additional band of up to GBP 175,000 where the main home passes to direct descendants. Tapered for estates above GBP 2 million.
Are gifts to charity IHT-exempt?
Yes, without limit. A 10 percent charitable gift can reduce the IHT rate on the rest of the estate to 36 percent.
Frequently asked questions
What is the IHT nil-rate band?
GBP 325,000 per individual, frozen until 2030. Above this (plus the residence nil-rate band where applicable), IHT applies at 40 percent.
Are pensions outside the estate for IHT?
Most DC pensions have historically been outside the estate. Changes announced for April 2027 will bring most unused pension funds within the IHT regime.
How do lifetime gifts work?
Gifts above annual exemptions fall outside the estate after 7 years. Taper relief reduces IHT on gifts made 3 to 7 years before death.
What is the residence nil-rate band?
An additional band of up to GBP 175,000 where the main home passes to direct descendants. Tapered for estates above GBP 2 million.
Are gifts to charity IHT-exempt?
Yes, without limit. A 10 percent charitable gift can reduce the IHT rate on the rest of the estate to 36 percent.
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