Inheritance Tax
Written in plain language for general understanding. This is educational content, not legal advice. Based on UK Acts of Parliament, statutory instruments, and official guidance.
UK National Law
What is this right?
Inheritance Tax (IHT) is charged on the estate (property, money, and possessions) of someone who has died. The key thresholds are:
- Nil-rate band: £325,000 — no IHT on the first £325,000
- Residence nil-rate band: An extra £175,000 if you leave your home to your children or grandchildren
- Combined: Up to £500,000 tax-free for an individual, or £1 million for a married couple/civil partners (as the unused allowance passes to the surviving partner)
IHT is charged at 40% on anything above the threshold. If you leave at least 10% of your estate to charity, the rate drops to 36%.
When does it apply?
- The estate of the deceased is worth more than the nil-rate band.
- Everything left to a spouse or civil partner is exempt from IHT (unlimited).
- Gifts made in the 7 years before death may be subject to IHT on a sliding scale (taper relief).
- You can give away £3,000 per year tax-free (the annual exemption), plus unlimited small gifts of up to £250 per person, and gifts for weddings (up to £5,000 to a child, £2,500 to a grandchild).
- The residence nil-rate band is tapered for estates over £2 million — it reduces by £1 for every £2 over that amount.
What should you do?
- Make a will — dying without a will (intestate) can mean your estate doesn't go where you intend and may increase the IHT bill.
- Consider lifetime gifts — assets given away more than 7 years before death are outside the estate.
- Use trusts and pension nominations for tax-efficient estate planning — pensions normally pass outside the estate.
- If you're an executor and the estate owes IHT, you must pay it within 6 months of the end of the month of death. Property-related IHT can be paid in 10 annual instalments.
What should you NOT do?
- Don't try to avoid IHT by giving away your home but continuing to live in it — this is a "gift with reservation of benefit" and HMRC will still treat it as part of your estate.
- Don't assume your estate is too small — property values can push estates over the threshold, especially in London and the South East.
- Don't forget to claim the transferable nil-rate band — if your spouse died without using their full allowance, the unused portion can be transferred to your estate.
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