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.

A Beginner's Guide to UK Trusts

Trusts are legal arrangements that allow you to place assets under the control of trustees for the benefit of named beneficiaries. They are a key tool in estate planning and can help reduce inheritance tax by removing assets from your estate.

Types of UK Trusts

Discretionary trusts — Trustees decide how and when to distribute income and capital among beneficiaries; flexible and commonly used for IHT planning
Interest in possession trusts — A named beneficiary receives all income from the trust; capital passes to others on their death
Bare trusts — The beneficiary has an absolute right to the assets and income; assets still form part of the settlor's estate if created within 7 years of death
Loan trusts — The settlor lends money to a trust; growth within the trust falls outside the estate while the loan is repaid if needed
Discounted gift trusts — Combines gifting with retained income; the gifted amount is discounted for IHT purposes immediately

IHT Rules for Trusts

Assets placed in a discretionary trust are subject to an immediate 20% entry charge (on amounts above the nil rate band)
A 10-year periodic charge of up to 6% applies to discretionary trusts
Exit charges apply when assets leave a discretionary trust
Trusts placed via PETs (Potentially Exempt Transfers) into trust fall outside the estate after 7 years