Inheritance Tax

Here's the simple version:

• If the estate is under £325,000: IHT = £0
• If the estate is over £325,000: IHT = 40% of the amount over £325,000

This is the headline rule. But the complications come from: what counts as "the estate", what exemptions reduce it, and what allowances increase the threshold.

For inheritance tax purposes, "the estate" includes:

• House and land: At current market value, not what was paid for it
• Bank accounts and savings: All of them, in any bank (see notifying banks for how to get balances)
• Investments: Stocks, bonds, unit trusts, ISAs, premium bonds - all of it
• Life insurance: Unless the policy was written in trust (see below), even if it names a Beneficiary
• Their share of anything owned jointly: Including a home owned as joint tenants, even though it passes straight to the other owner without probate
• Business interests: Even if they're 5% of a company
• Cars, jewellery, art: Valued for probate purposes
• Pension death benefits: For deaths before 6 April 2027, only if payable to the estate (most aren't). For deaths from 6 April 2027, most unused pension funds and pension death benefits will count
• Gifts made in the last 7 years: With some exceptions (see taper relief below)

What does not count:

• Life insurance held in trust: The beneficiary gets it, not the estate
• Most pensions, for deaths before 6 April 2027: The scheme usually decides who gets the money and pays them direct. Death-in-service lump sums stay outside the estate after that date too
• Money in most trusts: The trustees deal with it, not the executor. Some older trusts, where the person had the right to the income, do count
• Gifts to charity in the will: These are tax-free, and leaving enough can lower the rate on the rest (see the charitable rate section below)

Pulling together the date-of-death valuations for every account, policy, and asset is the hardest mechanical part. Information and Documents holds them in one place as the figures come in, so the IHT400 isn't a last-minute scramble across a dozen letters.

If the deceased owned a home and it passes to "direct descendants" (children, stepchildren, adopted and foster children, grandchildren and their descendants, and the husband, wife or civil partner of any of them), there's an additional allowance: the residence nil-rate band (RNRB).

RNRB for deaths in 2026/27: £175,000.

This is added to the standard £325,000 nil-rate band, giving you a total of £500,000 threshold if a home is involved.

However:

• If the house passes to a spouse or civil partner, the RNRB isn't used, but it isn't lost: the unused share can be added to their own RNRB when they die
• If the house is sold and the money goes to a non-direct descendant, the RNRB doesn't apply
• If the person sold their home or moved somewhere cheaper (for example into a care home) on or after 8 July 2015, the estate may still get some or all of the RNRB through the "downsizing addition", as long as children or grandchildren inherit something
• If the estate is worth more than £2 million, the RNRB is reduced by £1 for every £2 over

The RNRB is complicated, which is why you need a solicitor to calculate it properly.

Any amount left to a spouse or civil partner is exempt from IHT. Any amount.

The one exception: if the husband, wife or civil partner who inherits is not a long-term UK resident, the tax-free amount can be limited to £325,000.

But when the surviving spouse dies later and leaves everything to children, their nil-rate band can be doubled (see the transferable nil-rate band below).

The spouse exemption is why many wills say "everything to spouse if still living, then to children."

If the first spouse or civil partner to die doesn't use all of their nil-rate band, the unused share can be added to the survivor's own nil-rate band when they die. Leaving everything to the survivor uses none of it, because gifts to a spouse are tax-free. What transfers is a percentage, applied to the nil-rate band at the time of the second death.

This is not automatic. The Executor of the second spouse has to claim it, usually on form IHT402 with the inheritance tax account, within 2 years of the end of the month in which the second spouse died.

If the deceased gave away money or assets within 7 years of death, those gifts might be added back into the estate for IHT purposes.

These are called Potentially Exempt Transfers (PETs). They're "potentially" exempt - they become fully exempt if the person survives 7 years, but if they don't, the gifts count as part of the estate.

This is why wealthy people often give money away 7+ years before they die (if they can afford to). It reduces the estate for IHT.

Taper relief

If the person survives 3+ years after the gift, the tax rate on it gradually reduces. Taper relief only helps when the gifts made in the 7 years before death add up to more than the £325,000 nil-rate band, because otherwise there is no tax on them to reduce.

But: gifts to a spouse or civil partner, and gifts to charity, are exempt with no limit. So are gifts within the £3,000 annual exemption.

This is complex. It's a job for a probate solicitor.

Gifts to charity are tax-free. On top of that, if the will leaves at least 10% of the estate's "baseline amount" to charity, the tax rate on the rest drops from 40% to 36%. The baseline amount is, broadly, what the estate is worth above the nil-rate band, after other exemptions and reliefs, before the charity gift is taken off.

Some people plan their will this way on purpose: the charity receives much more than the family gives up.

Some estates are small or simple enough that they don't need to file the full IHT400 form. These are called "excepted estates."

For 2026/27, an estate is usually excepted if it is a simple case and either: its gross value is under £325,000 (or up to £650,000 if a late husband, wife or civil partner's unused nil-rate band transfers in full); or its gross value is under £3 million and everything above the £325,000 threshold passes to a spouse, civil partner, or charity (so no tax is due). Limited lifetime gifts (broadly up to £250,000 in the 7 years before death) and modest foreign assets (up to £100,000) are still allowed within these limits.

If you have an excepted estate, you apply for probate without filing a full IHT form. You just declare on the probate form that it's excepted.

Larger gifts, sizeable overseas property, or a trust can tip an estate out of the excepted category, so it has to file the full IHT forms even when no tax is due. Your solicitor will confirm whether it counts as excepted.

Here's the catch-22: any inheritance tax usually has to be paid before probate is granted, but the money to pay it is often in accounts you can't reach without probate.

There are ways round it:

• From the person's own accounts: Under HMRC's Direct Payment Scheme, most banks and building societies, and National Savings & Investments, can pay HMRC straight from the person's accounts before probate. You fill in form IHT423 for each one.
• From British government stock: This can also be used to pay HMRC directly.
• In instalments: The tax on a house or land can be paid in 10 yearly instalments instead of in one go (see below).
• By borrowing: A bank or specialist lender can lend the money, to be repaid from the estate later.
• A "grant on credit": If none of these work, you can ask HMRC to let probate go ahead before the tax is paid. You sign an undertaking, a legally binding promise to pay the tax within an agreed time once you can reach the money.

Once HMRC has the IHT400 and enough tax, it sends a code, usually within 20 working days, which you need to apply for probate (or Confirmation in Scotland). In Northern Ireland, HMRC returns form IHT421 instead.

IHT must be paid by the end of the sixth month after the month of death. For example, if the person died in January, it is due by 31 July.

If it's paid late, HMRC charges interest at the Bank of England base rate plus 4% (since 6 April 2025), so the rate changes when the base rate does.

Probate often takes longer than six months. You can pay some of the tax "on account" before you know the final figure, which stops interest building up on that amount. HMRC refunds any overpayment, with interest, after probate.

If the estate includes property (a house, land, etc.), you can ask HMRC to let you pay the IHT on that property in 10 equal yearly instalments instead of one lump sum. Tax on savings and other assets still has to be paid in full.

You still need to file the forms and declare the full amount. But instead of paying it all now, you pay it in chunks.

This helps if the deceased had a house but not much in savings. Interest is charged on the unpaid balance, though not on the first instalment if it's paid on time. If you sell the property, the rest of the tax has to be paid straight away.

If the deceased owned a business or farmland, there are special reliefs that can reduce the taxable value.

• Business Relief (BPR): A business, an interest in one, or shares in an unlisted trading company, usually owned for at least 2 years, can qualify. For deaths from 6 April 2026, 100% relief applies to the first £2.5 million of qualifying business and agricultural property combined, and 50% relief above that. Shares on the AIM market get 50% relief. A spouse or civil partner's unused £2.5 million allowance can pass to the survivor.
• Agricultural Property Relief (APR): Farmland and farm buildings can qualify. They share the same £2.5 million allowance at 100% relief, with 50% relief above it.

These are specialist areas. If they apply to your situation, you need a probate solicitor with tax experience, not a generalist. The reliefs can save tens of thousands, but they have strict rules.

Inheritance tax rates and thresholds are the same in Scotland and Northern Ireland as in England & Wales:

• Nil-rate band: £325,000
• RNRB: £175,000 (if applicable)
• Tax rate above threshold: 40% (or 36% if 10%+ to charity)

Each tax year, a person can give away £3,000 in total without it counting towards their estate. If they didn't use it the year before, they can carry that forward for one year, so up to £6,000.

So: if the deceased gave £3,000 to a child in December, and died in February, that gift doesn't count towards the PET/taper relief calculations.

It's called the "annual exemption". If you're planning gifts to reduce estate value, you can give £3,000/year. Over 10 years, that's £30,000 with no IHT consequences.

The executor can deduct debts the person owed when they died, and reasonable funeral costs, before calculating IHT. This includes:

• Funeral costs (up to a reasonable amount)
• Outstanding mortgage (on a property in the estate)
• Outstanding personal loans, credit cards and bills

This can significantly reduce the taxable estate. Probate and solicitors' fees can't be deducted, because they arise after the death.

Always tell your solicitor about debts and mortgages. They reduce the tax bill.

If the estate is over the threshold (or if it's not an "excepted estate"), you file:

• IHT400: The main inheritance tax return
• IHT402: Claim to transfer a late spouse's unused nil-rate band
• IHT403: Gifts made before death
• IHT404: Jointly owned assets
• IHT405: Houses, land and buildings
• IHT418: Assets held in trust
• IHT435 and IHT436: Claiming the residence nil-rate band, and transferring a late spouse's unused one

These are filed with HMRC. Your solicitor does this, or your executor handles it if they are doing the administration themselves. It's not something you do yourself unless you're confident with tax forms.

HMRC then sends a code confirming enough tax has been paid, usually within 20 working days, and you use it to apply for probate (in Northern Ireland, HMRC returns form IHT421 instead). A clearance certificate (form IHT30) is different: you can ask for one at the end, once all the tax is settled.

• Check whether you need probate with our Do I Need Probate? guide
• If you need to apply, follow our How to Apply for Probate walkthrough
• If there's no will, read about intestacy rules to understand who inherits
• Check bank probate thresholds to understand what each institution requires
• Plan ahead with our estate planning checklist to get your documents in order
• Plan ahead with Planning Mode: record your decisions before they are needed.