Inheritance Tax (IHT) is a tax that is levied on a person’s estate when they die and can also be payable during a person’s lifetime on certain trusts and gifts. The rate of Inheritance Tax payable is 40% on death and 20% on lifetime gifts.  There is a nil-rate band, currently £325,000 below which no IHT is payable.

Transfers between married couples and civil partners are not usually subject to IHT, meaning that when the first partner of a couple dies leaving their estate to the other no IHT will be payable. The surviving partner also receives any unused nil-rate band allowance of the deceased.

The main limitations on spouse or civil partner exemption are that it does not apply to

• postponed gifts – under certain circumstances, a transfer to a spouse or civil partner is not exempt if it ‘takes effect on the termination after the transfer of value of any interest or period’.
• conditional gifts – a gift to a spouse or civil partner is not exempt if it depends on a condition which is not satisfied within twelve months after the transfer.

In addition, the spouse or civil partner exemption does not apply to certain dealings with settled property, including reversionary interests.