What is Inheritance Tax?
Inheritance Tax is a UK tax on the estate of someone who has died. An estate can include property, savings, investments, possessions, and some lifetime gifts. It is not called estate tax in the UK, but it serves a similar purpose.
Nil-rate band and residence nil-rate band
The nil-rate band is the amount an estate can pass on before IHT is charged. The residence nil-rate band can apply when a main home is left to direct descendants. Unused bands can usually transfer between spouses and civil partners.
The 7-year gift rule
Gifts to individuals are usually potentially exempt transfers. They normally fall outside the estate if the donor survives seven years. Gifts made within seven years can still be counted, and taper relief may reduce tax after three years.
Why pensions are often outside your estate
Defined contribution pensions are usually held outside the estate for IHT purposes, which can make them important in estate planning. Pension tax treatment can still depend on age at death, scheme rules, and beneficiary choices.