Inheritance Tax: An Introduction

Inheritance tax (IHT) is a key consideration for anyone planning how, when and if to pass on wealth to the next generation. This wealth can include properties, cash, shares, land, woodland and various other assets. Understanding the IHT basics can help you make informed decisions, legitimately reduce unnecessary tax liabilities, and preserve more of your estate for those you wish to inherit it.

What Is Inheritance Tax?

Inheritance tax is a tax on the value of a person’s estate when they die. The estate includes property, land, investments, cash, and certain gifts made during the person’s lifetime.

In the UK, the standard rate of IHT is 40%, but it only applies to the value of the estate above a certain threshold.

The Nil-Rate Band and Main Residence Allowance

Every individual has a nil-rate band (currently £325,000), which means the first £325,000 of an estate is inheritance tax-free.

If you pass your home to direct descendants (for example, children or grandchildren), you may also qualify for the residence nil-rate band, currently up to £175,000 per person.

For married couples and civil partners, any unused allowance from the first death can be transferred to the surviving partner. In practice, this means a couple could potentially pass on up to £1 million without paying IHT, depending on circumstances.

Exemptions and Reliefs

Some assets are exempt from IHT altogether, and certain categories attract generous reliefs. For example:

• Spouse or civil partner exemption: assets passed to a UK domiciled spouse or civil partner are generally exempt

• Charitable gifts: anything left to a UK registered charity is free from IHT

• Agricultural Property Relief (APR) and Business Property Relief (BPR): These can reduce or eliminate IHT on qualifying farmland, woodlands, or business assets — a major consideration for rural estates and forestry investors. For potential Legacy Forestry buyers, Business Property Relief is a key tax relief available offering up to 100% relief from IHT. Please see the ‘Guidance’ section for more information

Lifetime Gifts

Gifts made more than seven years before death are generally free from IHT. However, gifts made within seven years may be taxed, with a sliding scale of relief after three years (this is known as taper relief).

Why Planning Matters

Without proper planning, IHT can significantly reduce the value of an estate. Thoughtful strategies, such as structuring ownership, making use of exemptions, or investing in assets qualifying for relief, can help legitimately preserve wealth for future generations.

Final Note

Inheritance tax rules are complex, subject to change and increasingly are a topic raised in the political arena. Professional advice is essential to ensure you take full advantage of available reliefs. Legacy Forestry offers the opportunity of woodland ownership to be integrated into an estate planning strategy, potentially benefitting from a 0% IHT rate where applicable. Woodland ownership allows individuals and couples to plan effectively for succession, while also potentially harnessing the personal, health and sustainability benefits.