What is the UK inheritance tax rate for 2024/25?

The UK inheritance tax rate is 40% on estates above the nil-rate band of £325,000. The rate reduces to 36% if 10% or more of the estate is left to charity.

What is the residence nil-rate band?

The residence nil-rate band is an additional £175,000 allowance available when you leave your main residence to direct descendants (children or grandchildren).

Who pays inheritance tax?

Inheritance tax is typically paid by the executors of the estate from the estate's assets before distribution to beneficiaries. Payment is usually due within 6 months of death.

How to Reduce Inheritance Tax Legally in the UK

There are several HMRC-compliant strategies to legally reduce UK inheritance tax. This guide covers the most effective IHT reduction methods available for 2024/25.

Legal Strategies to Reduce IHT

Seven-year gifting rule — Gifts made more than 7 years before death are fully IHT-exempt (Potentially Exempt Transfers)
Annual gift exemption — Give up to £3,000 per tax year free of IHT; unused allowance carries forward one year
Small gifts exemption — Gifts of up to £250 per person per year to any number of individuals are exempt
Spouse/civil partner transfers — All transfers between UK-domiciled spouses are IHT-exempt
Charitable donations — Gifts to charity are exempt; leaving 10%+ of net estate reduces the IHT rate to 36%
Business Property Relief (BPR) — Up to 100% relief on qualifying business assets and AIM shares (after 2 years)
Agricultural Property Relief (APR) — Up to 100% relief on qualifying farmland and agricultural property
Pension contributions — Pension pots generally fall outside the estate for IHT purposes
Trusts — Assets placed in trust can be removed from your estate (subject to relevant rules)
Life insurance in trust — Provides funds for the IHT bill without increasing the estate value