Inheritance tax is paid on the value of someone’s net estate at death (calculated as the value of their assets, minus debts, and after calculating tax reliefs available). Inheritance tax is charged at 40% above a threshold, currently set at £325,000. This threshold is often termed the ‘nil-rate band’.
‘Gifts’ made during someone’s lifetime are usually known as ‘potentially exempt transfers’, because they do not become part of someone’s net estate if they are made seven or more years before their death. Inheritance tax charges may apply at a progressively lower rate between seven years and the time of death. Some gifts are always exempt from inheritance tax, regardless of when they are made.