House prices in Scotland continue to climb – up 40% since 2009 while the Inheritance Tax (IHT) threshold remains frozen at £325,000, therefore more families are unwittingly being pulled into the IHT net.
For homeowners, this means that what was once a “wealth tax” for the affluent is now a growing concern for middle – class estates. While proactive estate planning used to be considered by many as optional, it is now becoming essential for many families if they do not wish to pay IHT on their estates.
Why Rising House Prices Matter
The average Scottish home now costs over £200,000, eating significantly into the £325,000 nil rate band. When combined with savings, investments, and other assets, many estates exceed the threshold, triggering a 40% tax on the excess.
Married couples or those in civil partnerships can combine allowances (£650,000) if they leave their estates to each other on the first of their deaths. Each individual also has an additional ‘residence nil rate band’ available of upto to £175,000 if they leave a home to direct descendants but soaring property values still risk eroding even these protections.
Key Estate Planning Strategies
- Write a Will – without one, Scotland’s intestacy rules dictate asset distribution, which may not align with your wishes or result in the most tax efficient treatment.
- Lifetime Gifting – gifts to family members or others can reduce your taxable estate but beware the 7 year rule: if you die within the period of 7 years from the date of the gift, the value of the gift is still included in your estate for IIHT purposes.
- Trusts – these can shield assets from IHT while allowing controlled access for beneficiaries. However, this is not a straightforward option and appropriate advice should be sought.
- Charitable Donation – leaving 10% of your estate to charity cuts the overall IHT rate on your estate from 40% to 36% while any lifetime gifts or legacies left to charity on death are exempt from IHT.
- Business & Agricultural Relief – if you own a farm or business, some IHT reliefs apply but proposed 2026 restrictions mean considering your position sooner rather than later may be beneficial.
- Get Hitched! – spouses and civil partners benefit from tax free inheritance from each other and access to each other’s unused nil rate bands on the death of the survivor.
The Bottom Line
With IHT receipts hitting in excess of £8 billion in 2025, HMRC is collecting more than ever.
The key takeaway? Plan early, review often, and seek expert advice. A well structured estate plan gives you the best chance of ensuring your inheritance benefits those closest to you.
Should you wish to review your IHT position and obtain advice regarding possible mitigation strategies, please contact our Personal Law team.
DISCLAIMER
The content of this page is for information only. It is not intended to be construed as legal advice and should not be treated as a substitute for specific advice. Gibson Kerr Ltd accepts no responsibility for the content of any third party website to which this webpage refers. Gibson Kerr Ltd is regulated by the Law Society of Scotland