Inheritance tax is charged on the transfer of property passing on death (chargeable transfers) subject to various exemptions and reliefs, notably for certain business and agricultural property. It is also levied on certain gifts made within the seven years before an individual's death (potentially exempt transfers) and gifts made outside the seven year period where the deceased has retained some benefit in the gifted property. In addition, certain transfers (to companies and most trusts) are taxed at the time of transfer (life-time transfers).
Inheritance tax is calculated on a cumulative basis. When a chargeable transfer is made, tax is calculated at the rate in force at that date taking into account the cumulative total of chargeable transfers made by the individual in the preceding seven years. Inheritance tax is charged at the rate of 20 percent in respect of lifetime transfers and 40 percent where it arises as a result of death (including tax on potentially exempt transfers). There is a nil rate band, which is the first £325,000 of cumulative chargeable transfers on which no inheritance tax is charged. The nil rate band is expected to be frozen at the current level of £325,000 until 5 April 2018.
There is an exemption for most transfers between spouses and civil partners. The unused proportion of the nil rate band on the first death can be transferred to their surviving spouse or civil partner, increasing their nil rate band by that percentage.
In the UK Summer Budget 2015 speech, the government announced that the inheritance tax threshold on family homes was lifted to £1m.
The government also announced that from April 2017, inheritance tax will be payable on all residential property owned by non-domiciled residents, regardless of their tax residency, even if the property is held indirectly via an offshore company or partnership.