What is inheritance tax and how does it work?
Inheritance tax is a levy placed on the property, money and possessions of a person who has passed away, the level of inheritance tax depends on the:
- Value of the estate. The tax-free threshold is currently £325,000 - inheritance tax only applies to estates worth more.
- Beneficiary of the estate. Married couples and civil partners do not have to pay inheritance tax. Direct descendants (children or grandchildren of the deceased) may benefit from an additional £175,000 in tax-free allowance if the main residence nil-rate tax band is granted. Nieces and nephews do not qualify for this.
- Time between the donor's death and date of gift. If a gift is made less than three years before a donor's death, a 40% inheritance tax rate will apply. Any gift more than seven years prior to the donor's death is exempt.
What you need to know
Ways you may be able to reduce inheritance tax
It's possible to legally reduce the amount of inheritance tax due on your property and possessions when passing on your estate, so your family, friends or other beneficiaries can receive more of what you've worked hard to build.
You should look to take advice or speak to someone before implementing any major changes to your finances or assets to mitigate the tax-burden.
Want to learn more about inheritance tax?
Take a look at our inheritance tax planning page and find out how expert advice could help you.
Important legal information
Lloyds Bank plc. Registered office: 25 Gresham Street, London EC2V 7HN. Registered in England and Wales No. 2065. Lloyds Bank plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under registration number 119278.
Schroders Personal Wealth is a trading name of Scottish Widows Schroder Personal Wealth Limited.