Inheritance Tax in the United Kingdom
Reviewed by the Commoner Law Editorial Team. Sourced from UK Acts of Parliament, statutory instruments, and official guidance. Written in plain language for general understanding — this is educational content, not legal advice. Our editorial standards
What is this right?
Inheritance Tax catches a small minority of estates but the ones it catches feel it heavily — 40% on the slice above the threshold. The thresholds have been frozen since 2009, which means rising house prices have pulled more middle-class families into the net every year.
- 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 direct descendants — children, grandchildren, stepchildren.
- Combined: up to £500,000 tax-free for an individual, or £1 million for a married couple or civil partnership, because the unused band on the first death transfers to the survivor.
The headline rate is 40% on the value above the threshold. Leave at least 10% of your net estate to charity and the rate on the rest drops to 36% — a useful tool for people who were going to give to charity anyway.
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 to Do If You Are Worried Your UK Estate Will Face a Large Inheritance Tax Bill
Estate planning is dull until it isn't. The earlier you plan, the more options exist.
- Make a will. Dying intestate can send the estate to people you didn't intend, push it through expensive court process, and waste reliefs that proper drafting would have used.
- Consider lifetime gifts. Anything given away more than seven years before death falls outside the estate entirely — the seven-year clock is the foundation of most legitimate IHT planning.
- Use trusts and pension nominations. Pensions usually sit outside the estate when nominations are properly completed — a powerful and underused tool.
- If you're an executor and the estate owes IHT, payment is due within 6 months of the end of the month of death. Property-related IHT can be paid in 10 annual instalments (with interest), which often gives families breathing room.
What should you NOT do?
- Don't try the "give-away-the-house-but-live-in-it" trick. HMRC has seen it before. "Gift with reservation of benefit" rules pull the property right back into the estate, and the planning was for nothing.
- Don't assume your estate is too small to worry. Property values in London and the South East push more estates over the threshold every year, even modest ones.
- Don't forget the transferable nil-rate band. If your spouse or civil partner died without using all of theirs, the unused portion transfers — but the executors of the second estate have to claim it actively.
Common Questions
When does inheritance tax 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 I do if I'm concerned about inheritance tax on my estate in the UK?
Estate planning is dull until it isn't. The earlier you plan, the more options exist.Make a will. Dying intestate can send the estate to people you didn't intend, push it through expensive court process, and waste reliefs that proper drafting would have used.Consider lifetime gifts. Anything given away more than seven years before death falls outside the estate entirely — the seven-year clock is the foundation of most legitimate IHT planning.Use trusts and pension nominations. Pensions usually sit outside the estate when nominations are properly completed — a powerful and underused tool.If you...
What mistakes should I avoid with inheritance tax?
Don't try the "give-away-the-house-but-live-in-it" trick. HMRC has seen it before. "Gift with reservation of benefit" rules pull the property right back into the estate, and the planning was for nothing.Don't assume your estate is too small to worry. Property values in London and the South East push more estates over the threshold every year, even modest ones.Don't forget the transferable nil-rate band. If your spouse or civil partner died without using all of theirs, the unused portion transfers — but the executors of the second estate have to claim it actively.