{"id":7552,"date":"2025-12-03T13:16:16","date_gmt":"2025-12-03T13:16:16","guid":{"rendered":"https:\/\/ctt-group.co.uk\/private-client\/?p=7552"},"modified":"2025-12-03T13:16:19","modified_gmt":"2025-12-03T13:16:19","slug":"fantastic-iht-mistakes-and-how-to-avoid-them","status":"publish","type":"post","link":"https:\/\/ctt-group.co.uk\/private-client\/fantastic-iht-mistakes-and-how-to-avoid-them\/","title":{"rendered":"Fantastic IHT mistakes and how to avoid them"},"content":{"rendered":"
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Don\u2019t get caught out with these common Inheritance Tax planning mistakes.<\/p>\n

Inheritance Tax (IHT) can be a minefield of unintentional errors that are completely natural to make but have some pretty dire consequences further down the line, especially for your beneficiaries when it comes time to pay the IHT bill.<\/p>\n

Get ahead of any potential problems with efficient IHT planning. This means planning far in advance to ensure your heirs won\u2019t have any nasty surprises when it comes time to deal with your estate.<\/p>\n

In this article, we\u2019ll delve into the most common issues we see happen again and again to trip up even the most diligent client.<\/p>\n

 <\/p>\n

Properly understanding the seven-year rule<\/strong><\/h3>\n

When it comes to gifting money or assets to others, the seven-year rule is well known to anyone looking into IHT.<\/p>\n

The rule is essentially that once you make a gift, if you live seven years beyond that point, there is no IHT to pay on it, since it is no longer considered to be part of your estate. However, if you do die within those seven years, then there is some IHT liability and a percentage will have to be paid in tax.<\/p>\n

What most people don\u2019t realise is that there is a taper of the amount payable in IHT depending on how many years it\u2019s been since the gift was given. But this taper is only applied AFTER the Nil-Rate Band (NRB) threshold of \u00a3325,000 has been reached.<\/p>\n

When a person dies, their \u201cfailed gifts\u201d are the first thing reabsorbed into the value of the estate. In fact, the gifts are the first thing used toward the NRB threshold. It is only after gifts are all added back into the value of the estate that the taper comes into effect, and then only if that gift exceeds the \u00a3325,000 threshold.<\/p>\n

For instance, if you gave a gift of \u00a3750,000 and died within seven years of giving it, only the first \u00a3325,000 is free from IHT. The rest is liable for IHT as follows:<\/p>\n\n\n\n\n\n\n\n\n\n\n
Years between gift and death<\/th>\nIHT rate on gift under taper relief<\/th>\n<\/tr>\n<\/thead>\n
0\u20133 years<\/td>\n40% (full rate of IHT)<\/td>\n<\/tr>\n
3\u20134 years<\/td>\n32%<\/td>\n<\/tr>\n
4\u20135 years<\/td>\n24%<\/td>\n<\/tr>\n
5\u20136 years<\/td>\n16%<\/td>\n<\/tr>\n
6\u20137 years<\/td>\n8%<\/td>\n<\/tr>\n
7 years +<\/td>\nNo IHT<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

Failing to consider the \u00a32m limit<\/strong><\/h3>\n

Through the Residence Nil-Rate Band (RNRB) you gain a further \u00a3175,000 per person to pass on to your direct descendants by leaving them your main home, or share thereof. Your home also needs to be of suitable value. Couples can take further advantage of this by combining their RNRB, giving them a total additional allowance of \u00a3350,000 IHT free when gifting their main residence; there are, however, some caveats.<\/p>\n

If an individual\u2019s estate is worth more than \u00a32M, then a taper comes into effect, which means you are liable for more IHT. The RNRB tapers by \u00a31 for every \u00a32 of the estate\u2019s value above the \u00a32M threshold.<\/p>\n

Many are not aware of this \u00a32M threshold and believe that they will be able to take advantage of RNRB without knowledge of this additional tapering that comes into play over \u00a32M.<\/p>\n

The best way to deal with this is to reduce the overall value of the estate to below \u00a32M. This can be achieved through gifting but as we\u2019ve explained above, this also comes with some caveats.<\/p>\n

A further significant consideration is structuring a couple\u2019s estate so that the allowances are considered on each death. This also requires appropriate Wills, ideally with appropriate Trusts. Standard Wills, with no Trusts and leaving everything to a surviving spouse\/ civil partner could lead to the RNRB allowances being lost\/ tapered. The RNRB could also be lost when considering non married couples.<\/p>\n

Gifting a home is a fantastic thing to do for those in the position to do so, but being aware of how the thresholds work and when you will be able to gain the full RNRB allowance is all important.<\/p>\n

 <\/p>\n

Not being aware of the downsizer addition<\/strong><\/h3>\n

Selling a property does not necessarily mean you will miss out on the RNRB either. You will still be able to have an RNRB allowance if you qualify for a \u201cdownsizer addition\u201d.<\/p>\n

The criteria for being able to claim this are:<\/p>\n