Inheritance Tax

Introduction

**Inheritance Tax (IHT)** is the central tax on death. It was introduced by the **Inheritance Tax Act 1984 (IHTA 1984)**, replacing the former Capital Transfer Tax. Despite its name, IHT is **not** simply a tax on the estate of a deceased person: it is a tax on **chargeable transfers of value**, and its three principal occasions of charge include **two lifetime events** as well as the **death estate**. This chapter sets out the substantive law — the **occasions of charge**, the rules on **lifetime transfers** and their **exemptions**, **valuation** principles, the main **reliefs** (business property relief and agricultural property relief), the **nil-rate band (NRB)** and **residence nil-rate band (RNRB)**, the rules on **gifts with reservation of benefit (GROB)**, and the administrative rules on **payment**. Chapter 10 then applies these principles to worked calculations using the 2026 figures.

Assessment focus

IHT is consistently **one of the most heavily tested topics on FLK2**. The FLK2 syllabus expressly requires candidates to: identify the **three occasions** on which IHT is charged; apply the rules on **transferable NRB, RNRB and the £2m tapered withdrawal**; identify whether a lifetime gift is a **potentially exempt transfer (PET)** or a **chargeable lifetime transfer (CLT)**; and apply **business property relief (BPR)** and **agricultural property relief (APR)**. From **6 April 2026** the combined 100% rate allowance for BPR and APR is **£2,500,000**. Candidates should apply the new rule on every FLK2 question with a post-April-2026 fact pattern — the arithmetic swings significantly for high-value trading businesses and family farms, and the **£2.5m allowance IS transferable between spouses and civil partners**.

Study tips

1) Always begin by **identifying the occasion of charge** (CLT, failed PET, or death estate) — this is the most important diagnostic question in any IHT problem. 2) Apply the **lifetime exemptions in the correct order**: current-year annual exemption first, then one year's carry-forward — wrong order is the single most common FLK2 error. 3) Remember that IHT is charged on the **loss to the donor** (s.3(1) IHTA 1984), not the value the donee receives. 4) For deaths on or after **6 April 2026**, combine BPR and APR value, give **100% relief on the first £2.5m** and **50% on the excess**. 5) The **RNRB lineal descendant test** catches nieces, nephews and siblings as **NOT** qualifying — a gift of the home to a nephew gives an NRB only, a frequent £70,000 swing. 6) Note the dates of the new rules: **LTUKR test (6 April 2025)**, **£2.5m BPR/APR allowance (6 April 2026)**, **pensions into IHT (6 April 2027)**.