This guidance note outlines how to calculate the amount of inheritance tax that arises on death. It should be read in conjunction with the example calculations indicated in the text.

The tax charge on death falls under two headings:

  • the 'additional charge' - which arises on the chargeable lifetime transfers (CLT) and the potentially exempt transfers (PET) made in the seven years before death, and
  • the 'estate charge' - which arises on the value of all the property the deceased owns (or is deemed to own) immediately before death

The rates of IHT

When a chargeable transfer is made, whether during lifetime or on death, part or all of it may fall within the nil rate band. Technically, a 0% rate of tax is applied to this portion, which is calculated using the cumulation principle. The cumulation principle determines the amount of nil rate band available to each transfer with reference to transfers in the previous seven years. See the Nil rate band guidance note. IHTA 1984, s 7, Sch 1
To the extent that the transfer exceeds the nil rate band, it is charged to tax at either the death rate or the lifetime rate. The primary rate at which IHT is charged on death is 40%, although there are provisions for a reduced rate of 36% when part of the estate goes to charity.

Access this article and thousands of others like it free for 7 days
with a trial of TolleyGuidance.

ACCESS THE FULL ARTICLE

Already a subscriber? Login

Request a Free Trial to TolleyGuidance to gain access to the full article

TolleyGuidance is produced by specialists within the field, our tax guidance materials provide actionable insights and practical guidance to support you day-to-day. We don’t just inform you about the latest changes in the tax world. We take the time to explain the implications and, most importantly, what actions you need to take for your clients.


A bit about you:

Please note that all fields marked with a * must be filled in
Salutation
First name*
Last name*
Company*
Job title*
Email*
Phone*
Postcode