Overview
Inheritance Tax is charged on an estate’s value after death where it exceeds the available thresholds. The standard rate is 40% on the part above the nil rate band. Gifts made within seven years of death can count towards the estate, and transfers between UK-domiciled spouses or civil partners are generally exempt.
Thresholds and rates
The standard nil rate band is £325,000. A further residence nil rate band of £175,000 may be available where a home is left to direct descendants, and a surviving spouse or civil partner may inherit any unused nil rate band.
| Rate | % |
|---|---|
| Lifetime rate | 20 |
| Death rate | 40 |
| Death rate if sufficient charitable legacies made | 36 |
Reliefs for lifetime gifts
- Annual exemption: £3,000
- Small gifts: £250
| Wedding or civil partnership gift from | Amount (£) |
|---|---|
| Parent | 5,000 |
| Grandparent | 2,500 |
| Other spouse or civil partner | 2,500 |
| Other | 1,000 |
Gifts made within seven years of death may be charged at a reduced rate:
| Years before death | % of death charge |
|---|---|
| 0–3 | 100 |
| 3–4 | 80 |
| 4–5 | 60 |
| 5–6 | 40 |
| 6–7 | 20 |
Business and agricultural property relief
From 6 April 2026, 100% Business Property Relief and Agricultural Property Relief apply to qualifying assets up to a combined £2.5 million. Value above that generally receives 50% relief. Unused allowance from a predeceased spouse or civil partner can be transferred, potentially raising the total to £5 million.
Calculating and paying the tax
Value the estate
Add up property, money, possessions and gifts made within seven years of death.
Apply allowances
Deduct the nil rate band and any other available allowances.
Calculate the tax
Usually 40% of the remainder, or 36% if at least 10% goes to charity.
Submit forms
Send the required forms to HMRC, with a probate application if needed.
Pay the tax
Generally due within six months of death. Some assets may qualify for instalments.
Frequently Asked Questions
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Who Pays Inheritance Tax?
Inheritance Tax is paid by the estate of the person who has died, before any assets are passed on to the beneficiaries. The executor or administrator is responsible for valuing the estate, calculating the tax due and paying it to HMRC. In practice, the tax is often paid from the estate’s funds, such as bank accounts or the sale of assets.
Do Beneficiaries Pay Inheritance Tax?
Beneficiaries do not usually pay Inheritance Tax on what they receive, because the tax is settled by the estate before the inheritance is distributed. However, they may have to pay Income Tax on any income generated by inherited assets, such as rental income or dividends. Capital Gains Tax can also apply if they later sell an inherited asset that has increased in value.
Who Is Exempt?
Estates passing to a surviving spouse or civil partner are generally exempt from Inheritance Tax, provided the recipient is UK-domiciled. Gifts and legacies left to qualifying charities and qualifying community amateur sports clubs are also exempt. These exemptions can significantly reduce or even remove the tax due, so it is important to plan how your estate is divided.
How Can Inheritance Tax be Reduced?
You can reduce your Inheritance Tax bill by making full use of your available allowances, giving gifts during your lifetime and leaving assets to a spouse or charity. Leaving at least 10% of your estate to charity can lower the tax rate on the rest from 40% to 36%. Trusts can also help in some situations, so professional advice is recommended to plan effectively.
What is the Nil Rate Band?
The standard nil rate band is £325,000, which means no Inheritance Tax is due on the first £325,000 of an estate. An additional residence nil rate band of £175,000 may apply when a home is left to direct descendants, such as children or grandchildren. A surviving spouse or civil partner can also inherit any unused nil rate band, which can increase the amount that passes tax-free.
Do Gifts I Make Before Death Count Towards my Estate?
Gifts made within seven years of your death can be added back into your estate for Inheritance Tax purposes. The tax charged on these gifts reduces over time, from 100% of the death charge for gifts made in the first three years to 20% in the sixth to seventh year. After seven years, the gift is generally free from Inheritance Tax, and some smaller gifts are exempt immediately.
When Does Inheritance Tax have to Be Paid?
Inheritance Tax is generally due within six months of the death, so the executor needs to act quickly to value the estate and submit the required forms to HMRC. Interest can be charged on any tax that is paid late, which makes early planning important. Some assets, such as property, may qualify to pay the tax in instalments, which can help ease cash flow.
What are Business Property Relief and Agricultural Property Relief?
Business Property Relief and Agricultural Property Relief reduce the Inheritance Tax due on qualifying business and farming assets. From 6 April 2026, 100% relief applies to qualifying assets up to a combined limit of £2.5 million, and value above that generally receives 50% relief. Unused allowance from a predeceased spouse or civil partner can be transferred, potentially raising the total to £5 million.