Certain buildings, land, works of art, and other objects of national significance may be exempt from Inheritance Tax and Capital Gains Tax (CGT) when they are transferred to a new owner. This exemption applies under a special tax relief for national heritage assets that are either gifted or bequeathed.

To qualify for this relief, the asset must meet at least one of the following criteria:

• Buildings, estates or parklands of outstanding historical or architectural interest
• Land of outstanding natural beauty and spectacular views
• Land of outstanding scientific interest including special areas for the conservation of wildlife, plants and trees
• Objects with national scientific, historic or artistic interest, either in their own right or due to a connection with historical buildings

Upon transfer of ownership, the new owner is required to enter into a formal agreement, known as ‘the undertakings. This agreement ensures that the asset will be cared for, made available for public viewing, and retained in the UK. Failure to meet these conditions, or selling the asset, results in the revocation of the tax exemption under the Conditional Exemption Tax Incentive scheme. As a consequence, the asset would then be subject to tax in accordance with the standard rules.

HMRC is guided by the government’s heritage advisory agencies in deciding which assets qualify for exemption.

Gifting assets can cut inheritance tax, but traps like “gifts with reservation of benefit” may undo the plan.

The majority of gifts made during a person's lifetime are not subject to tax at the time they are made. These lifetime transfers are known as "potentially exempt transfers" (PETs). A PET becomes fully exempt from Inheritance Tax if the individual making the gift survives for more than seven years after the transfer.

If the donor dies between three and seven years after making the gift, taper relief may apply, which reduces the amount of tax payable. The effective rates of tax on the excess over the nil-rate band for PETs are as follows:

• 0 to 3 years before death: 40%
• 3 to 4 years before death: 32%
• 4 to 5 years before death: 24%
• 5 to 6 years before death: 16%
• 6 to 7 years before death: 8%

However, different rules apply if the person making the gift retains some benefit or enjoyment of the asset. This typically occurs when the donor does not relinquish full control over the asset, and the transfer is made with a reservation of benefit. These are referred to as ‘gifts with reservation of benefit’ (GWROBs).

A common example is when a person gifts their home to their children but continues to live in it rent-free. In this case, HMRC is likely to argue that the donor’s position has not changed in substance, and that the arrangement constitutes a GWROB. If this is the case, HMRC will not treat it as a valid gift for inheritance tax purposes, and the property would remain part of the donor’s estate, even if they live for more than seven years after making the transfer.

A GWROB can usually be avoided in these situations if the donor pays full market rent for their continued use of the asset.

From 6 April 2027, new measures first announced in the Autumn Budget 2024 will come into force. These changes will bring most unused pension funds and death benefits into the scope of Inheritance Tax (IHT) from April 2027. This represents a major change to the tax treatment of pensions on death and will significantly broaden the IHT net by capturing assets that were previously excluded from tax.

Individuals with significant pension savings should review their estate plans carefully. Beneficiaries inheriting unused pension funds or death benefits may now face an IHT charge, making forward planning essential. Under the revised rules, personal representatives will be responsible for reporting and paying any IHT due, rather than pension scheme administrators.

There are important exclusions to note. Death-in-service benefits paid from registered pension schemes and dependants’ scheme pensions from either defined benefit arrangements or collective money purchase schemes will not fall within the scope of IHT. These will continue to be treated as before.

These reforms follow a technical consultation which concluded in January 2025 and led to changes in how liability is assigned. The new approach has raised concerns about potential issues such as payment delays, added administrative burden, and data privacy risks. As a result, close cooperation between personal representatives and pension providers will become increasingly important to ensure compliance and efficient estate administration.

Trustees must manage assets, follow tax rules, and register with HMRC where required.

A trust is a legal arrangement in which a trustee, either an individual or a company, is entrusted with managing assets such as land, money, or shares on behalf of others. These assets, placed into the trust by a settlor, are managed for the benefit of one or more beneficiaries.

Trustees are responsible for deciding how the trust's assets are to be managed, distributed, or retained for future use. They are also accountable for reporting and paying any tax due on behalf of the trust. If the trust pays or owes tax, it must be registered with HMRC.

Income received by a trust is subject to varying rates of Income Tax, depending on the type of trust.

Discretionary (or accumulation) trusts: Trustees pay tax on the trust's income. The first £500 is taxed at the standard rate. Income above this threshold is taxed at:

• 39.35% for dividend income
• 45% for all other types of income

Interest in possession trusts: Trustees are similarly responsible for paying tax on income. The rates are:

• 8.75% for dividend income
• 20% for all other income

There are additional trust structures, for example, bare trusts and settlor-interested trusts, which are subject to different rules and tax treatments. As a result, it is essential to consider both Income Tax and Capital Gains Tax (CGT) implications from the outset when establishing or managing any type of trust.

With the Residence Nil Rate Band (RNRB), families can pass on up to £1 million without IHT

The RNRB is an additional £175,000 Inheritance Tax (IHT) allowance that applies when a person’s main residence is passed to a direct descendant, such as a child or grandchild, after their death. The allowance is available to married couples and civil partners, and it can significantly reduce the IHT liability on family homes.

The RNRB is separate from and in addition to the standard IHT nil-rate band of £325,000. When combined with the standard threshold, a married couple or civil partners can potentially pass on up to £1 million tax-free to their direct descendants. This figure is based on two individuals each having a £325,000 nil-rate band and a £175,000 RNRB.

Importantly, any unused portion of the RNRB from the first spouse or civil partner to die can be transferred to the surviving partner, provided a claim is made to HMRC when the second partner dies. This transfer is not automatic and must be claimed. This is usually done by the executor of the estate during administration.

The RNRB is subject to tapering for larger estates. For estates valued over £2 million, the RNRB is reduced by £1 for every £2 over the threshold. As a result, estates significantly exceeding £2 million may lose the RNRB entirely, even if the home is passed to direct descendants.