Inheritance Tax (IHT) Jargon Buster

Furley Page specialist legal team, which includes a Chartered Tax Adviser, will guide you through the maze of rules governing Inheritance Tax (IHT). To contact a legal adviser, click on the links on the right hand side of this page.

Annual exemption  :  The amount you can give away each tax year that will be exempt from Inheritance Tax. This is currently £3,000 and applies to one gift or several gifts up to that amount. There are other exemptions which can apply.
Asset  :  A possession which has value, such as a house, land, cash or securities.
Charity exemption  :  A transfer that is made to a charity or other qualifying body is exempt from inheritance tax.
Commorientes  :  See Simultaneous Deaths below. 
Estate  :  The rules governing how the value an Estate is measured changed from 22 March 2006. The total of all assets is added to the chargeable value of any gifts made within seven years of the death to work out the amount on which tax is charged. For specialist advice in this complex areas, speak to a member of our Wills, Tax and Estates Planning team.
Excepted estate  :  An estate where a full inheritance tax account is not required. From 6 April 2004 there are three types of excepted estate, 1)low value estates, 2) exempt estates, 3) foreign domicilaries.
Exempt estate  :  A type of excepted estate where the gross value of the estate does not exceed £1,000,000 and there can be no liability to inheritance tax because spouse or civil partner exemption or charity exemption bring the estate below the inheritance tax threshold.
Exempt gifts  :  Gifts that are exempt from inheritance tax. These include:
 

• gifts to individuals more than seven years before death. See potentially exempt transfers
• gifts to spouses or civil partners
• gifts not exceeding £3,000 in any one tax year. See annual exemption
• gifts on consideration of marriage or civil partnership
• gifts to UK charities
• gifts for national purposes
• small gifts
• gifts which are normal expenditure out of income

Exempt transfer  :  An exempt transfer is one that is wholly covered by one or more exemptions.
Exemptions  :  Some gifts are exempt from inheritance tax because the gifts are covered by exemptions. See exempt gifts for details of the exemptions from inheritance tax which may apply.
Gift with reservation of benefit  :  A gift which is not fully given away so that the person getting the gift does so with conditions attached or the person making the gift keeps back some benefit for themselves.
Her Majesty’s Revenue & Customs (HMRC)  :  The Government department created from the merger of the Inland Revenue and HM Customs & Excise.
Inheritance (Provision for Family and Dependants) Act  :  An Act which enables certain classes of people to make a claim against the estate of a deceased.  The claim will be on the basis that the Will of the deceased or the laws of intestacy do not make reasonable financial provision for the person(s) claiming.
Inheritance Tax  (IHT) :  A tax on the value of a person's estate on death and on certain gifts made by an individual during their lifetime.
Inheritance Tax Threshold  :  The inheritance tax threshold is the amount above which inheritance tax becomes payable. If the estate, including any assets held in trust and gifts made within seven years of death, is less than the threshold, no inheritance tax will be due on it.
Nil-rate band  :  The amount of an estate on which there is no inheritance tax to pay. If the value of an estate, including any assets held in trust and gifts made within seven years of death, falls within the nil-rate band there will be no IHT payable on the estate. Where the value of an estate exceeds the nil-rate band, only the amount above the nil-rate band is taxed at 40%.
Potentially exempt transfer (PET)  :  For transfers made on or after 22 March 2006, a PET is an outright gift to an individual, to a disabled person’s Interest, or to a bereaved minor’s trust on the coming to an end of an immediate post-death interest which becomes exempt if the donor lives for seven years after the date of the gift. For specialist tax advice speak to our Chartered Tax Adviser.
Simultaneous Deaths  :  For inheritance tax purposes, if two or more people die and it is not known who died first, (HMRC) assume that they have died at the same moment. The legal position for the administration of the estate, it is presumed that the elder will died first. This is also known as commorientes.
Spouse or Civil Partner Exemption  :  Gifts made between spouses or civil partners are exempt from inheritance tax. This exemption is limited to £55,000 if the deceased (or donor) was domiciled in the UK and their spouse or civil partner was not domiciled in the UK at the time of the transfer.  See People Involved in Making a Will.
 

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