The basic rule for valuation of property for IHT purposes Property is valued for inheritance tax (IHT) purposes as: • the price that the property might reasonably be expected to fetch if sold in the open market at that time • provided that price is not assumed to be reduced on the ground that the whole property is placed on the market at the same time This is known as the open market value test. For further information on the valuation of assets for IHT purposes and related principles, see Practice Note: IHT—valuation principles and particular types of property. How are liabilities taken into account for inheritance tax? In valuing an individual’s estate in order to calculate the IHT due on their death, the personal representatives (PRs) can deduct the deceased individual’s debts and liabilities. Liabilities are also, generally, deductible when valuing an individual’s estate at the time of a lifetime gift and in valuing trust assets when a charge to IHT arises on the assets held in trust. Debts not incurred by the deceased

In many circumstances, particularly for deaths before 1 January 2022, personal representatives (PRs) cannot obtain a grant of representation until they have delivered an inheritance tax (IHT) account to HMRC giving full details of appropriate property and its value to the best of their knowledge and belief, and payment of the appropriate IHT and interest has been confirmed by HMRC issuing a unique code and details of the estate values to include in the probate application. However, PRs of estates for which there is no IHT liability and which meet certain conditions to be an excepted estate do not have to submit an IHT account to HMRC and may simply provide the requisite information about the value of the estate to HMCTS Probate when applying for the grant of probate or letters of administration. For further information on the procedure for applying for a grant, see Practice Note: Application for a grant of representation. What is an excepted estate? Whether an estate is an 'excepted estate' depends on different rules in place at the date of death:

History of the gift with reservation (GWR) regime The old capital transfer tax regime contained no rules concerning the reservation by a transferor of any benefit out of a gift made and the loophole was widely exploited. For example, people would transfer property or land to someone else but still live in that property. However, under the inheritance tax (IHT) regime, new rules came into effect from 18 March 1986 in order to counter the abuse (at the same time as the introduction of potentially exempt transfers). Many arrangements were devised over the years to enable donors to give assets away but still retain the benefit. This practice led to the Finance Act 2004 introducing an income tax charge on benefits received by the former owners of property, referred to as the pre-owned assets charge (POAT). What is a gift with reservation of benefit? Under section 102 of the Finance Act 1986 (FA 1986), where an individual disposes of any property by way of a gift, it

Nil rate band (NRB) and transferable nil rate band (TNRB) Each person's estate is charged to inheritance tax (IHT) up to a certain threshold at a rate of zero per cent, called the nil rate band (NRB), which is £325,000 for the tax year 2023–24. The government announced at Autumn Statement 2022 that it will be frozen at this level until 5 April 2028 . See: Autumn Statement 2022—Private Client analysis—Key Private Client announcements. Prior to 9 October 2007, if the value of the chargeable transfer on a person's death did not use up all of their available NRB (either because their estate was less than the NRB or was left to an exempt beneficiary) its tax-saving benefit would not be fully realised. For example, it is common for spouses to leave their entire estates to each other under their Will (and in the absence of a Will, a significant amount, if not all of the estate, passes to the surviving spouse under the intestacy

There is an important exemption from IHT for lifetime gifts out of the donor’s surplus income. The exemption is not available on death but applies to both outright lifetime gifts and lifetime gifts into trust. This is a valuable and relatively simple exemption which individuals should consider before embarking on more complex lifetime IHT planning. Where the qualifying conditions are met, the benefits of this exemption include: • immediate exemption from IHT. There is no seven year waiting period as there is with potentially exempt transfers • no immediate reporting requirement because gifts which are exempt are not chargeable transfers for IHT (but see Claiming the exemption below) • the donor’s nil rate band remains intact because exempt gifts are not aggregated with later gifts • there is no set limit on the amount that can qualify, provided the gift does not exceed the donor’s surplus income When does the exemption apply? The qualifying conditions in order for this exemption to apply are: The gift must be made from income • gifts

FORTHCOMING CHANGE relating to IHT on pension death benefits: At Autumn Budget 2024 on 30 October 2024, the government announced that it will bring unused pension funds and death benefits payable from a pension into a person’s estate for IHT purposes from 6 April 2027. This will apply both to defined contribution and defined benefit schemes, as well as to UK registered schemes and qualifying non-UK pension schemes. A technical consultation on the implementation of these changes ran from 30 October 2024 to 22 January 2025. For more information, see Practice Note: Hot topic—the reform of inheritance tax on pensions and News Analysis: Autumn Budget 2024—Private Client analysis—Inheritance tax. There are various immediate steps that the family members, personal representatives (PRs) and their advisers will need to take following an individual's death, such as reviewing the deceased's Will (if available) and making funeral arrangements. In terms of inheritance tax (IHT) liability, the PRs will then need to ascertain the deceased's assets and liabilities and assess whether the estate is likely to be subject

Quick succession relief (QSR), which is not to be confused with taper relief, applies to a transfer of value which attracts a second inheritance tax (IHT) charge within a five-year period of the original gift or chargeable transfer. Take, for example, an individual who receives a lifetime gift (or inherits it on death) in year one in respect of which IHT is paid and in year three that recipient dies having retained the asset which now forms part of their taxable estate on which IHT is payable. QSR serves to provide a measure of relief against the second IHT liability based on the amount of IHT paid on the first transfer and dependent on the time elapsed between the two transfers. How the relief works and when it applies Relief for successive charges, also referred to as QSR, is available where the value of a person’s estate is increased by a chargeable transfer (whether a lifetime transfer or one on death) made not more than five years before their death. The IHT charged on the death is reduced

On death, a person is treated as having made a transfer of value equal to the value of their estate immediately before death. Exemptions from UK inheritance tax (IHT) fall into three categories: • those that apply during lifetime only • those that may apply either during lifetime or on death, and • those that apply on death only The majority of the IHT exemptions are available both for lifetime transfers and transfers made at death and one such exemption is for gifts to charities. Generally, transfers to a qualifying UK charity or registered amateur sports club in the UK will be exempt from IHT. The charity exemption is very widely used and in practice the personal representatives (PRs) will simply need to supply the registered charity number or details of the registered club to HMRC when submitting the IHT account. Due to the wide benefit of this exemption, there are provisions to restrict its abuse. Until 15 March 2023, the definition

This Practice Note introduces the residence nil rate band (RNRB), which was originally known as the additional threshold and is also known as the residential nil rate band or residential property nil rate band. It explains what the RNRB is, the conditions for it to apply, how it is calculated and how it is claimed. While this Practice Note contains some links to worked examples, customers are encouraged to see Practice Note: IHT—residence nil rate band Q&As for extensive links to Q&As and worked examples of how the RNRB applies to various scenarios in practice. The RNRB is an addition to the basic NRB, which further reduces the inheritance tax (IHT) payable on death. It is applied to the taxable value of the estate, but differs from the basic NRB in that it is restricted to: • the value of a residential property interest • the estate on death, and • the inheritance of lineal descendants • estates not exceeding the upper taper threshold The RNRB was introduced in the Finance (No 2) Act

This Practice Note aims to guide practitioners to Q&As and worked examples of the principles under which the inheritance tax (IHT) residence nil rate band (RNRB) (also known as the additional threshold) and the transferable RNRB (brought forward allowance) are calculated and applied on the death of an individual on or after 6 April 2017. For general information on the RNRB, see Practice Note: IHT—residence nil rate band. It should be noted that individual Q&As state the law as at the date indicated in each case. In particular, Q&As dated before 6 April 2025 are likely to refer to the domicile-related regime for IHT, rather than the residence-based regime which applies from that date. For information on the basic nil rate band (NRB) and the transferable NRB and in particular how these reliefs are claimed and relevant deadlines, see Practice Notes: IHT—nil rate band (NRB) and transferable NRB and IHT—calculation of nil rate band and transferable NRB. Identifying the qualifying residential interest The RNRB is available to be set against the deceased’s whole estate

Overview and legislative background Where someone has suffered an injury, wrong or injustice and formal compensation schemes have been established, specific tax exemptions or reliefs are often given so as not to diminish the compensation received by the victims or their families, including in circumstances where the victim may have died or have a shorter life expectancy as a result. This Practice Note focuses on the inheritance tax (IHT) exemptions and reliefs and any special provisions for the administration of estates of individuals affected. Compensation schemes for victims of persecution during the Second World War Which schemes are included? IHTA 1984, s 153ZA provides IHT relief for ‘qualifying payments’ received at any time by a deceased person (P) or their personal representatives (PRs), for deaths on or after the relevant commencement dates. Previously these provisions were included in Extra Statutory Concession (ESC) F20. Qualifying payments are defined as payments which meet Conditions A, B or C. Condition A qualifying payments Condition A is met where the payment is specified in IHTA 1984, Sch 5A,

The charge on death The Inheritance Tax Act 1984 (IHTA 1984) sets out how a charge to inheritance tax (IHT) may arise when an individual dies. When a person dies, they are treated as having made a transfer of value equal to the value of their estate immediately before death. A transfer of value made by an individual, other than certain exempt transfers, is a chargeable transfer for IHT purposes and, depending on the value of the person's estate and the availability of any reliefs or exemptions, a charge to IHT may arise. The deceased’s estate For the purposes of the IHT legislation, a person’s estate is the aggregate of all the property to which they were beneficially entitled immediately before death, less their liabilities, taking into account any relevant lifetime gifts but not including excluded property (both as referred to below). Artificial debts and certain liabilities classified as non-deductible debts cannot be used to reduce the value of the estate. Property to which a person is beneficially entitled does not include excluded