Currently the first £325,000 (the ‘nil rate band’) of assets passing to your beneficiaries will be free of tax and the balance will be liable to inheritance tax at 40%. However, anything passing to your spouse, civil partner or charity will be completely free of inheritance tax, subject to certain criteria. If you leave 10% or more of your chargeable estate to charity then the remainder will be charged at a reduced rate of 36%.
There are further concessions for business and agricultural property, which could also be free of inheritance tax.
Since 2007, if a person’s nil rate band has not been used (often because everything passes to the surviving spouse) it can be transferred for the benefit of the surviving spouse. This means that often there is £650,000 that can be passed tax free on the death of the second spouse.
The government is currently proposing to introduce an additional nil rate band that applies to the family home when left to direct descendants. This has still not been confirmed but the intention is that this will eventually amount to £175,000 per person. HMRC have indicated that this will also be transferable between spouses and so a family could pass assets of £1m to their children free of inheritance tax.