Inheritance Tax: What is it and should I be worried?

Over the last few weeks we have looked at the important terms and phrases you will come across when making your will. This terminology is important to make sure your will really does say what you want it to. I thought we would have a look now at some of the other things which are important when making a will.

So... What Is Inheritance Tax?

Inheritance tax is the tax that no-one wants to pay. I often hear "I've paid tax all my life so I don't want to give the Government any more when I die". Essentially, inheritance tax is a tax on the value of your estate (that’s all your money, property, and belongings) after you die.

But don't panic, not everyone pays inheritance tax. In fact, many estates fall under the threshold, and there are loads of reliefs and exemptions. It’s all about good planning, and that's what Argo is here to help with.

The Magic Number: £325,000

Right now (as of 2025), you can leave up to £325,000 to your family and friends without any inheritance tax at all. This is called your nil-rate band. In simple terms, you can own assets up to the value of £325,000 with no charge to inheritance tax.

Above that the taxman wants a slice. That’s 40% on anything over the threshold.

Let's look at an example:

• If your estate is worth £400,000, the first £325,000 is tax-free.

• The remaining £75,000 is taxed at 40%.

• So, your estate could pay £30,000 in tax.

But that's if you do nothing, do not claim further reliefs and exemptions and you do not plan.

The Family Home Boost: Residence Nil-Rate Band

If you are leaving your main home to your children or grandchildren, there’s an extra allowance called the Residence Nil-Rate Band. It’s currently up to £175,000 per person but you have to claim this.

So that £325,000 becomes £500,000 tax-free if your estate includes your home and it’s going to kids and grandchildren, even stepchildren (which are included for this relief).

This means, if you are married or in a civil partnership, you can combine your allowances meaning you could pass on up to £1 million tax-free.

Now that sounds much better doesn't it!

Common Misconceptions

There are lots of conversations however that happen over a beer in the pub which need to be corrected so here goes:-

🧁 If I gift something while I’m alive, it’s tax-free.  Sort of. If you live for seven years after making a gift, it’s generally outside your estate. But if you die sooner, it might be taxed. There are also yearly gift allowances that you can make to give things away without worrying about inheritance tax, so planning matters!

🎁 My estate will pay the tax, so it’s not my problem. That's right, but emotionally? Financially? It can really impact your loved ones. And you probably don’t want a big tax bill to eat into what you’ve left for them.

📜 I made a will ten years ago. That’ll do. Life changes. So does the law. Make sure your will (and tax planning) reflects your current situation. That’s where someone like me comes in.

🧁I will give my house to my children. If you give your home to your children but continue to live in it the house is still included in your estate because you have reserved a benefit in the gift ie you have retained the right to live in the house.

What Can You Do?

Everything becomes manageable with a conversation. There are things you can do to protect your estate from inheritance tax:

✨ Make a Will. Clearly state your wishes. A properly drafted will can make use of exemptions and avoid unnecessary tax.

✨ Plan Ahead. The earlier you think about this, the more options you have. Gifts, trusts, charitable legacies. It’s all there for you to use.

✨ Talk to Someone Human. Don't take the easy option and prepare an online will or do not take advice. Argo meets clients face-to-face, takes time to understand your situation and gives you advice that is right for you.

Final Thoughts From us

With a bit of forward planning over a coffee, you can make sure more of your hard-earned wealth goes to the people you love, not straight to HMRC.

If you're not sure where to start, we are here. No scary suits, no stuffy boardrooms, just a chat over coffee.