⚠️ Please note: we are currently working on updating our tax guidance for 2020/21
across the LITRG website
Inheritance tax allowances and exemptions
This section illustrates the main inheritance tax allowances and exemptions available on death, highlighting those of particular importance to those who have served in the armed forces. This includes the position if you die on active service. This section is only applicable to those who are domiciled in the UK.
What special exemptions are available to those who have served in the armed forces?
Any death on active service, or a death accelerated by an injury sustained on such duty, means that the estate is totally exempt from inheritance tax. HM Revenue & Customs need a certificate before this exemption can be awarded. Your contact at the Ministry of Defence will be able to help you obtain this.
Any award for bravery or for gallant service is exempt from inheritance tax provided it has never been sold.
You can read more about the special exemptions for those who have served in the armed forced in HMRC’s IHT manual.
What allowances and exemptions are generally available on death?
Nil rate band
For 2018/19 the first £325,000 is charged to tax at a rate of 0%. But this nil rate band can be used up by the value of any gifts made during lifetime. You can read more about this in our section What is the nil rate band?.
Any gifts made to your spouse or civil partner during lifetime or on death are free from inheritance tax, provided your spouse or civil partner is domiciled in the UK.
Further, if your spouse or civil partner dies and does not use their full nil rate band, the unused portion will be able to be used on your death. For example, if your spouse dies and their whole estate passes to you – that transfer is free of inheritance tax so their estate will have used none of the nil rate band. On your subsequent death you would have a nil rate band to use of £650,000 (at current rates).
For more information, see the section on transferring the nil rate band.
Residence nil rate band
In recognition of the value of properties that are included in estates, an additional nil rate band is available with effect from 2017/18 to cover part of the value of a property left to a lineal descendant – in other words to a child or grandchild.
The additional nil rate band is £125,000 in 2018/19 (£100,000 in 2017/18).
Any part of the allowance unused on the death of a first spouse can be transferred to the surviving spouse.
The allowance is also available when a person downsizes or ceases to own a home on or after 8 July 2015, and assets of an equivalent value, up to the value of the additional nil rate band, are passed on death to direct descendants.
For more information, see the section on the residence nil rate band.
There are special rules for both business and agricultural property possibly enabling them to qualify for full relief from inheritance tax (no tax payable) or for half the value to be relieved from inheritance tax. You can read more about this on GOV.UK.
Gifts to charity
Gifts to charity are not liable to inheritance tax. Also, if the gift is substantial it may reduce the rate of inheritance tax paid on the balance of the estate. You can read more about this on GOV.UK.