Inheritance Tax UK: How Much Will You Pay?

Inheritance tax (IHT) is charged on the value of an estate above certain thresholds when someone dies. Many families will pay nothing, but rising property values mean more estates are close to the limits. Here is how the basics work.

The nil-rate band

Every individual has a nil-rate band of £325,000. Any part of the estate within this amount is taxed at 0%. Anything above it is generally taxed at 40%. This threshold has been frozen for several years.

The residence nil-rate band

If you leave your home to direct descendants such as children or grandchildren, an extra residence nil-rate band of up to £175,000 may apply. It is reduced by £1 for every £2 that the estate exceeds £2 million, so larger estates may lose it entirely.

Passing everything to a spouse

Assets left to a UK-domiciled spouse or civil partner are generally exempt from inheritance tax. Any unused nil-rate band can be transferred to the surviving partner, so a couple can potentially pass on up to £650,000, or up to £1 million including both residence bands, before tax applies.

Worked example

Suppose an estate of £800,000 includes a home passed to children. The nil-rate band is £325,000 and the residence nil-rate band is £175,000, totalling £500,000 of tax-free allowance.

Taxable estate: £800,000 - £500,000 = £300,000. Inheritance tax at 40% = £120,000.

Run your own scenario in the Inheritance Tax Calculator UK.

Gifts and the seven-year rule

Gifts made more than seven years before death are usually outside the estate. Gifts made within seven years can be taxed, with a sliding scale of relief after three years. Regular gifts out of surplus income and small annual gifts are among the exemptions that may apply.

When to get advice

Trusts, business assets, pensions, overseas property and charitable giving can all change the result. Rules and thresholds change, so check GOV.UK and speak to a solicitor or regulated financial adviser before making plans.

Frequently Asked Questions

What is the inheritance tax rate?

The standard rate is 40% on the value of an estate above the available tax-free allowances.

Do I pay inheritance tax on a gift to my spouse?

Transfers to a UK-domiciled spouse or civil partner are generally exempt.

What is the residence nil-rate band?

An additional allowance of up to £175,000 when a home is left to direct descendants, tapered for estates above £2 million.

Who pays inheritance tax?

It is normally paid from the estate by the executors before assets are distributed.

This article is for general information only and is not financial, legal or medical advice. Rules and figures change, so check the official sources below and speak to a qualified adviser for decisions that matter.