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.
FAQs
Frequently asked questions
Who pays Inheritance Tax?
The estate pays it before assets are passed on. The executor or administrator calculates and pays the amount due.
Do beneficiaries pay Inheritance Tax?
Usually not, though they may pay income tax on income from inherited assets.
Who is exempt?
Estates passing to a surviving spouse or civil partner, qualifying charities and qualifying community amateur sports clubs.
How can Inheritance Tax be reduced?
Using allowances, lifetime gifts, leaving assets to a spouse or charity, and trusts. Professional advice can help.