Football may not be coming home this time…. However, with the recent news that Jack Charlton’s son has been unable to accept a gift of the World Cup Shirt, cap and Medal from his father due to inheritance tax we touch on the importance of Inheritance tax (“IHT”) planning.

This guide aims to help you understand the benefits of the spousal exemption on a taxable estate and the tax implications of gifts exceeding the nil rate band (“NRB”) of £325,000 made to individuals other than a spouse. Each individual has NRB allowance. This can be transferred between spouses allowing a joint estate up to £650,000.

The spousal exemption ensures that gifts between spouses or civil partners are generally exempt from IHT, whether made during their lifetime or upon death.

This exemption is governed by Section 18 of the Inheritance Tax Act 1984. The spousal exemption is crucial for reducing the taxable estate of a deceased individual.

It allows spouses to transfer assets worth up to £325,000 tax-free, even if one spouse is not a long-term UK resident. This exemption helps preserve family wealth by deferring IHT liability until the death of the surviving spouse.

A gift exceeding £325,000 made to a spouse during the donor’s lifetime is exempt from IHT under the spousal exemption, provided both spouses share the same domicile status (either both UK domiciled or both domiciled outside the UK). However, for mixed-domicile couples, the exemption is capped at £325,000, and any amount exceeding this threshold will attract IHT.

Gifts to individuals other than a spouse, such as children or other relatives, are subject to IHT if they exceed the NRB threshold of £325,000. The NRB is currently frozen at £325,000 until 5 April 2031.

Gifts or estates exceeding the NRB are taxed at 40% upon death or 20% for lifetime transfers. For gifts exceeding £325,000, the amount above the threshold is subject to IHT.

Example: A gift of £400,000 to a child would have the first £325,000 tax-free, while the remaining £75,000 would be subject to IHT.

Gifts made within seven years before death are aggregated with the estate for IHT purposes, potentially increasing the overall tax liability.

A beneficiary may refuse a gift under a will through a disclaimer, provided the refusal occurs before they accept any benefit from the gift.

Strategic estate planning is essential to minimise tax exposure and optimise the use of exemptions.

With the introduction of any unused pension forming part of the Residuary Estate from April 2027 IHT planning is essential.