Inheritance Tax (IHT) is charged on the value of a person’s estate above certain allowances when they die. In Scotland, IHT is set and collected by HMRC, so the rules are UK-wide — but how those rules interact with Scottish property law, Wills, and succession planning can make a big difference.

This guide explains how IHT works, what the current thresholds are, common reliefs and exemptions, and the practical steps you can take to reduce the bill for your family.

When Does Inheritance Tax Apply?

IHT is charged at 40% on the value of your estate above the available allowances. Your “estate” includes:

• Property in your name
• Savings and investments
• Certain gifts made during your lifetime
• Personal possessions such as jewellery or valuable collections

If your estate is worth less than the nil-rate band (currently £325,000), no IHT is due. Above that, tax may be payable unless exemptions or reliefs apply.

Key Allowances and Exemptions

Nil-Rate Band
Every individual has a £325,000 nil-rate band. This can be used against any part of your estate.

Residence Nil-Rate Band
If you leave your home to a direct descendant (such as a child or grandchild), you may also qualify for the residence nil-rate band — currently £175,000 per person. This is in addition to the standard nil-rate band and tapers if the estate exceeds £2 million.

Spouse or Civil Partner Exemption
Assets left to a spouse or civil partner are generally exempt from IHT, regardless of value.

Charitable Gifts
Anything left to a registered charity is exempt from IHT. If you leave at least 10% of your estate to charity, the IHT rate on the rest can reduce from 40% to 36%.

Married Couples and Civil Partners

Unused allowances can be transferred between spouses or civil partners. If one partner dies without using their full nil-rate band and residence nil-rate band, the unused portion can be passed to the survivor.

Between you, the combined allowances could be:

• £325,000 × 2 = £650,000 (nil-rate band)
• £175,000 × 2 = £350,000 (residence nil-rate band)

That gives a potential £1 million tax-free allowance — but only if you qualify for both allowances in full.

Example — The Borders Couple
John and Margaret jointly own a home worth £450,000 and have combined savings of £200,000. John dies first, leaving everything to Margaret — so no IHT is payable at that stage. Margaret now has two full nil-rate bands (£325,000 × 2) and two residence nil-rate bands (£175,000 × 2), totalling £1 million. When she dies, her estate passes to their children with no IHT to pay.

Reliefs for Farms and Businesses

Some assets qualify for Agricultural Property Relief (APR) or Business Relief (BPR), which can reduce or eliminate IHT on certain farming and business assets. The rules are strict, and you must meet specific conditions to claim these reliefs.

Example — The Family Farm
Andrew owns a working farm near Kelso. He leaves the farmland and farmhouse to his son, who continues to farm the land. Agricultural Property Relief applies at 100%, meaning no IHT is due on the agricultural value of the land.

Lifetime Gifts

You can give away assets during your lifetime, but some gifts are still counted towards IHT if you die within seven years of making them (Potentially Exempt Transfers). Other gifts, such as small annual gifts up to £3,000 or regular gifts from surplus income, may be immediately exempt.

Example — The Share Portfolio Gift
Elaine gives her daughter £50,000 from her investment portfolio. She lives for more than seven years after the gift, so it falls out of her estate for IHT purposes. If she had died within five years, some tax would have been due, tapered depending on the time elapsed.

Common Pitfalls

• Assuming the £1 million allowance applies automatically — it only works if you meet the residence nil-rate band rules.
• Gifting property too late in life — can still be included in your estate or challenged as “deliberate deprivation” if linked to care fee avoidance.
• Not updating your Will when your family or property situation changes.

Practical Steps to Reduce Inheritance Tax

• Keep your Will up to date
• Consider who inherits your home and whether you can use the residence nil-rate band
• Use lifetime gift allowances where possible
• Seek advice on reliefs for farms or businesses if relevant
• Keep records of gifts and exemptions claimed

When to Seek Advice

IHT planning is most effective when it’s part of your wider estate planning — including Wills, property ownership structure, and potential care fee planning.

At Hastings Legal, we can review your situation, explain your options, and put a plan in place that reflects your wishes and protects your assets.

Call 01573 226999 or email enq@hastingslegal.co.uk to arrange a no-obligation discussion.