Inheritance Tax Rates
- Home
- Resources
- Tax Rates Allowance
- Inheritance Tax Rates
How inheritance tax rates affect you
Inheritance tax rates determine how much tax may be due on a person’s estate after they die. In the UK, inheritance tax (IHT) applies when the total value of an estate is above certain thresholds, although allowances and exemptions can help bring the bill down. This guide explains how inheritance tax rates work, who pays, which allowances are available, and how you can plan ahead to protect more of your wealth for your loved ones.
What Are Inheritance Tax Rates?
Inheritance tax rates set out how much tax is charged on the value of an estate when someone dies. In the UK, the standard inheritance tax rate is 40% on anything above the nil rate band, which is a tax-free threshold for each individual estate. Some estates benefit from extra allowances, such as the residence nil rate band, which can reduce the amount that is taxable. Certain gifts made during someone’s lifetime may also be taxed if they were given within seven years of death. Understanding how inheritance tax rates work, which allowances apply and what counts towards the taxable estate helps families plan ahead and potentially reduce what they owe to HMRC.
Getting Started with Income Tax Rates and Allowances
Before working out what inheritance tax might be due, it is important to understand how the rates and thresholds apply to an estate. The standard rate is 40% on anything above the nil rate band, but many estates can benefit from extra allowances, such as the residence nil rate band, which can lower the taxable amount. Planning ahead, making use of tax-free gifts, and leaving assets to a spouse, civil partner or charity can help reduce inheritance tax or even remove it altogether. Knowing the rules and the reliefs available can make a big difference when passing wealth on to your family. IHT may be payable when an individual’s estate is worth more than the IHT nil rate band at the time of death. Transfers between UK-domiciled spouses, whether during life or on death, are exempt from IHT. A further nil rate band of £175,000 may be available in relation to current or former residences. The IHT threshold on death may be increased for surviving spouses, since some of the nil rate band may not have been used, or not fully used, on the first death. There are reliefs for some business and farming assets, which reduce their value for IHT purposes. IHT may also be payable on gifts made during an individual’s lifetime but within seven years of death. Some lifetime gifts are exempt. Transfers of assets into trust during an individual’s lifetime may be subject to an immediate charge, but at lifetime rates. There are also charges on some trusts.
Threshold
Standard nil rate band: £325,000
Rates
Reliefs for lifetime gifts
Annual Exemption: £3,000
Small Gifts: £250
Marriage/civil partnership: the amount of relief depends on who the gift is from.
Reduced charge on gifts within seven years of death
Business Property Relief (BPR) and Agricultural Property Relief (APR)
from 6 April 2026, 100% BPR and APR is available on qualifying business and agricultural property up to a combined £2.5 million allowance. The qualifying value above £2.5 million generally receives 50% relief. Any unused allowance can be transferred from a predeceased spouse or civil partner, potentially increasing the available allowance to £5 million.
Who Pays Inheritance Tax?
Responsibility and Estate Valuation
Inheritance Tax is usually paid from the deceased person’s estate. The executor or administrator values the estate, including property, money, possessions and relevant gifts made during the final seven years of the deceased person’s life.
Allowances and Tax Calculation
The executor or administrator checks the estate against the tax-free threshold and any additional allowances. Tax is usually calculated at 40% on the remaining taxable value after applying relevant thresholds, exemptions and available tax reliefs.
Payment Deadline and Interest
Inheritance Tax is generally due by the end of the sixth month after the month of death. The executor or administrator should arrange timely payment, as interest may be charged on any outstanding tax balance.
Who Doesn't Pay Inheritance Tax?
Spouse Estate Rule
An estate passing to a surviving spouse or civil partner usually pays no tax now.
Charity Tax Status
Qualifying charities are also fully exempt from paying this inheritance tax now.
Sports Club Status
Qualifying community amateur sports clubs are fully exempt from inheritance tax.
Beneficiary Status
Beneficiaries do not normally pay inheritance tax on the estate directly always.
Inherited Earnings
Beneficiaries may pay income tax on rent or dividends earned from assets always.
Estate Plan Method
Understanding inheritance tax helps families plan ahead and avoid tax bills now.
How to Pay Inheritance Tax
Paying inheritance tax starts with valuing the estate and working out whether any tax is due. This is the responsibility of the executor named in the will, or an administrator if there is no will.
Steps to Pay Inheritance Tax
Value the Estate:
Add up the total value of the person's property, money, possessions and any gifts made within seven years of death.
Apply Allowances:
Deduct the nil rate band (tax-free threshold) and any other allowances, such as the residence nil rate band.
Calculate the Tax:
Work out the inheritance tax due, usually 40% on anything above the thresholds, or 36% if at least 10% of the estate is left to charity.
Submit the Forms:
Complete and submit inheritance tax forms to HMRC, along with the probate application if needed.
Pay the Tax:
Inheritance tax must usually be paid within six months of the person's death. If it is not, HMRC may charge interest on late payments.
Check Instalment Options:
You may be able to pay Inheritance Tax in instalments on qualifying assets, such as property. Check HMRC’s eligibility rules and whether interest applies before choosing this payment option.
Keep Good Records
Estate Valuation Log
Executors should keep detailed records of how the estate was valued for tax now.
Relief & Payment Log
Recording all tax reliefs claimed and every payment made to HMRC for the estate.
HMRC Proof Requests!
Proper logs help prevent errors and avoid penalties if HMRC asks for proof here.