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 payable to the estate: If it's payable to a specific Beneficiary, it might not count
• Business interests: Even if they're 5% of a company
• Cars, jewellery, art: Valued for probate purposes
• Pension death benefits: Only if payable to the estate; most aren't
• 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
• Pensions with designated beneficiaries: Most modern pensions; the pension company pays the beneficiary direct
• Property held in joint names with survivorship rights: Passes outside the estate
• Money in a trust: The trustee deals with it, not the executor
• Charitable gifts: If 10% or more is left to charity, 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 children, grandchildren if their parent has died), there's an additional allowance: the residence nil-rate band (RNRB).

RNRB for deaths in 2025/26: £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, the RNRB doesn't apply (but see the spouse exemption below)
• If the house is sold and the money goes to a non-direct descendant, the RNRB doesn't apply
• If the deceased lived in a care home for the last 2+ years before death, the RNRB is reduced or lost
• The RNRB is being phased out if the estate is over £2 million (it reduces gradually)

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.

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 to die doesn't use their full nil-rate band (because everything went to the surviving spouse), that unused allowance can be "transferred" to the second spouse when they die.

To claim this, the Executor of the second spouse must file a claim with HMRC within 2 years of the death. This is automatic if you use a solicitor.

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 gradually reduces:

But: gifts to spouses are always exempt. Gifts to charities (up to the amount that triggers the 36% rate) are exempt. Regular annual gifts up to £3,000/year are exempt.

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

If the deceased left 10% or more of the estate to charity, the tax rate on the rest drops from 40% to 36%.

This is sometimes written into wills deliberately by wealthy people. They leave 10% to their favourite charity, and it saves money on the rest of the estate.

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

For 2025/26, these are: estate under £325,000, and no gifts in the last 7 years, and no foreign assets, and the deceased wasn't in a trust, and it's a straightforward case.

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

Most estates that don't owe tax still aren't excepted estates (because someone gave a gift 6 years ago, or there's a small overseas property, or something). Your solicitor will know if it's excepted.

Here's the catch-22: to get probate, you need to calculate the inheritance tax and tell HMRC what you owe. But the money to pay the inheritance tax is often locked in the estate (a bank account, a house sale, etc.). You can't access the money until you have probate. But you can't get probate until you pay the tax.

There are workarounds:

• Option 1: Pay the IHT from personal savings before probate. If you have the money, you pay HMRC, they give you a clearance certificate, and you apply for probate. This is the fastest.
• Option 2: Pay the IHT from the account itself using an "IHT account" arrangement. The bank releases money specifically to pay HMRC, before the full probate is granted. Most big banks do this. It takes 2–3 weeks.
• Option 3: Ask for an "undertaking" from the bank. The bank releases funds on the understanding you'll pay the IHT once the money is available. Less common but possible.
• Option 4: Instalment arrangement. If the estate includes a house, you can pay the IHT in 10 annual instalments instead of one lump sum.

Most people use Option 2 (the bank handles it). Your solicitor arranges it.

IHT is due 6 months after the person's death (or the end of the month in which they died, depending on when exactly in the month they died).

If you pay late, you pay interest on the late amount (currently around 3.5% per annum).

If the estate is complicated and probate takes 8 months, you've already missed the deadline. But you still pay interest from month 6 onwards.

This is another reason to get probate sorted quickly.

If the estate includes property (a house, land, etc.), you can ask HMRC to let you pay the IHT in 10 equal annual instalments instead of one lump sum.

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 liquid savings. But: if you sell the property within 10 years, you have to pay all remaining instalments immediately.

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

• Business Property Relief (BPR): Business assets (goodwill, shares in a trading company, partnership interests) can be exempt from IHT entirely if certain conditions are met. For example, shares in a trading company held for 2+ years are exempt from 100% of IHT.
• Agricultural Property Relief (APR): Farmland and farm buildings can be relieved from 50% to 100% of IHT value, depending on the situation.

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)

Current fees, thresholds, and the policy changes scheduled into the late 2020s: the wiki reference on inheritance tax.

You can give away £3,000 per year to anyone, and it's exempt from IHT. This is true even if the person dies partway through the year.

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 exclusion," and it's completely free. 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 legitimate debts from the estate before calculating IHT. This includes:

• Funeral costs (up to a reasonable amount)
• Outstanding mortgage (on a property in the estate)
• Outstanding personal loans
• Estate administration costs

This can significantly reduce the taxable estate.

Always tell your solicitor about debts, mortgages, and administration costs. 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: Supplement for domicile (if the deceased had foreign connections)
• IHT404: Supplement for jointly-owned assets
• IHT412: Supplement for trusts

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 responds with a "clearance certificate" (saying IHT has been paid or is not due), and you use this to apply for probate.

• 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.