Terminology explained

Potentially Exempt Transfer (PET)

A Potentially Exempt Transfer allows for unlimited value gifts that become exempt from IHT if the donor survives for seven years after the gift. If the donor does not survive this period, the gift reduces the donor's available NRB.

Chargeable Lifetime Transfer (CLT)

Chargeable Lifetime Transfers involve gifts made during an individual’s lifetime that are immediately taxable under IHT, most commonly transfers into Discretionary Trusts. These transfers may attract a 20% IHT on amounts exceeding the donor’s Nil Rate Band.

Spousal Exemption

Spousal Exemption from Inheritance Tax (IHT) covers all transfers between spouses or civil partners, whether during lifetime or upon death, provided they are UK-domiciled or deemed domiciled. This exemption ensures no IHT is payable on these transfers.

Nil Rate Band (NRB)

The Nil Rate Band is the threshold up to which no IHT is charged on an individual's estate, set at £325,000 for 2024/25. Estates valued up to this amount are taxed at 0% IHT, while the excess is taxed at 40%.

Residence Nil Rate Band (RNRB)

Available since 6 April 2017, the RNRB adds an additional threshold when a primary residence or its sale proceeds are left to direct descendants. It complements the standard NRB but reduces for estates exceeding £2 million and may involve complex calculations for downsized homes or changes in residence. The RNRB as at 2024/25 is £175,000 per person.

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What is Quick Succession Relief (QSR)?

QSR reduces IHT where an estate taxable on death includes assets received within the previous five years under an earlier transfer on which IHT was payable. Through QSR, a portion of the IHT paid on the first death is credited against the IHT paid on the second death.

The earlier chargeable transfer is usually a transfer made on death, but may be a failed Potentially Exempt Transfer (PET), an immediately Chargeable Lifetime Transfer (CLT) or a distribution from a relevant property trust. That transfer must have been within five years of the first death.

Other exemptions and rules to note

QSR does not apply if the transfer to the second deceased was exempt (e.g. fully covered by an exemption such as Spousal Relief or Business Relief), was chargeable but no IHT was paid as it was below the IHT thresholds, was made more than five years before the second deceased’s death or no IHT is payable on the second deceased’s death.

QSR is not transferable if it is available but unused, e.g. if the estate is left to a surviving spouse.

The calculation to determine Quick Succession relief available is:

Inheritance tax paid on earlier chargeable transfer X appropriate percentage X (Increase to deceased estate / Increase to deceased estate + tax previously paid).

Case Study

Take a look at how QSR impacts Nicola’s beneficiaries

> Simon died leaving his entire estate of £1.1m to his daughter Nicola, including a house.

> After deducting his full Nil Rate Band and Residence Nil Rate Band (£500,000 in total) £600,000 is liable to IHT @ 40% giving an IHT liability of £240,000. Nicola received the balance of £860,000.

> Nicola died just over three years later with an estate of £860,000.

> QSR: Tax paid on the transfer x the appropriate percentage: £240,000 x 40% = £96,000.

> However, the net increase in Nicola’s estate was £860,000 not the £1.1m on which the IHT was calculated.

> QSR is adjusted to reflect this: £860,000/£1,100,000 x £96,000 = £75,055.

Nicola’s IHT bill of £214,000 (£860,000 – 325,000 x 40% (no RNRB as she has no direct descendants)) is reduced by £75,055 leaving her executors with £138,945 to pay

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