Inheritance Tax Explained: Thresholds, Rates and Rules

What is inheritance tax?

Inheritance tax is a tax on the estate of someone who has died, paid only where the estate is worth more than the tax-free threshold. The great majority of estates fall below it and pay nothing.

The tax is worked out on a valuation of everything the person owned, their property, savings, investments, and possessions, after the deduction of any debts. Where the estate is above the threshold, tax is charged on the excess, not on the whole estate. It is usually the executors, the people named in the will to deal with the estate, who arrange payment from the estate itself before anything is distributed to beneficiaries. Where there is no will, the administrators handle it under the intestacy rules.

What are the inheritance tax thresholds?

Everyone has a nil-rate band of £325,000, and an additional residence nil-rate band of £175,000 where a home is left to direct descendants. Both are frozen until April 2031.

The nil-rate band is the amount of any estate that is taxed at 0%. The residence nil-rate band is an extra allowance that applies only when a main home passes to direct descendants, meaning children, grandchildren, and certain other lineal descendants. For larger estates it is tapered away, reducing by £1 for every £2 the estate is worth above £2 million, and disappearing entirely at £2.35 million.

Allowance	Amount	Applies to
Nil-rate band	£325,000	Every estate
Residence nil-rate band	£175,000	Home passing to direct descendants
Taper threshold	£2 million	RNRB reduces above this
Combined (couple, with home)	Up to £1 million	Spouses or civil partners

Figures as at July 2026. Both bands are frozen at these levels until 5 April 2031, confirmed at the Autumn 2025 Budget. Check gov.uk/inheritance-tax for the current position.

What is the rate of inheritance tax?

The standard rate of inheritance tax is 40%, and it is charged only on the part of the estate that sits above the available threshold. A reduced rate of 36% applies where at least 10% of the net estate is left to charity.

If an estate is worth £500,000 and the available threshold is £325,000, the 40% is charged on £175,000, not on the whole estate. A charitable legacy or a bequest to a spouse is deducted before that calculation, since both are exempt. The reduced 36% rate is a genuine feature of the system rather than a loophole. Leaving 10% or more of the net estate to charity lowers the rate on the remainder, and leaving money to charity in a will explains how that works alongside the charitable exemption. The rate itself has stood at 40% for many years.

Do spouses and civil partners pay inheritance tax?

No. Transfers between spouses and civil partners are completely exempt from inheritance tax, whatever their total value happens to be. Any unused nil-rate band from the first estate also passes to the surviving partner.

When the first partner dies and leaves their share of the family wealth to the other, no inheritance tax is due on that transfer, whatever the financial value involved. Because the first estate then uses none of its nil-rate band, the unused percentage passes to the survivor, who can claim it on top of their own. This is why a surviving spouse or civil partner can often have a combined threshold of up to £650,000. Where the family home passes to direct descendants and both residence allowances apply, that can reach up to £1 million. The transfer is claimed by the executors when the second estate is dealt with.

How does the 7-year rule on gifts work?

Gifts you make during your lifetime usually fall out of your estate for inheritance tax if you live for seven years after making them. Die within seven years and the gift may count towards the estate, with taper relief reducing the tax on larger gifts made between three and seven years before death.

Most lifetime gifts to individuals are “potentially exempt transfers”: free of inheritance tax if you survive seven years, and only brought back into the calculation if you do not. Where tax is due on a gift made between three and seven years before death, taper relief reduces it on a sliding scale. Some gifts are exempt regardless of the seven years, including a £3,000 annual exemption, small gifts of up to £250 per person, and wedding gifts within set limits. Gov.uk’s guidance on gifts and inheritance tax sets out each exemption in full.

What are business relief and agricultural relief?

Business relief and agricultural relief can reduce the taxable value of qualifying business or farm assets, but the rules are complex and changing. These are areas to check on gov.uk and to take advice on.

Business relief and agricultural relief exist so that qualifying trading businesses and farms are not forced to be sold to pay a tax bill. A combined £1 million allowance for the 100% rate applies, frozen until April 2031 and, from recent changes, transferable between spouses. Beyond that allowance the treatment differs, and the detail genuinely needs specialist input. This guide names these reliefs so you know they exist. It does not attempt to advise on them, because how they apply depends entirely on the specific assets and circumstances.

How is inheritance tax reported and paid?

The executors report the estate’s value to HMRC and pay any inheritance tax due, usually by the end of the sixth month after the person died. Payment often has to be arranged before the grant of probate is issued.

The executors, or administrators where there is no will, value the estate, complete the relevant HM Revenue and Customs forms, and settle the liability from the estate. Inheritance tax is generally due by the end of the sixth month after the month of death, and interest is charged on anything paid late. Tax on some assets, such as property, can be paid in instalments over ten years. Because the tax often has to be paid before probate is granted, executors sometimes use a direct payment scheme from the deceased’s bank or a short-term arrangement to cover it.

Where do wills and trusts fit in?

A will directs who inherits, and choices within it, such as gifts to a spouse or to charity, affect whether inheritance tax is due. Some trusts have their own inheritance tax treatment, which is a matter for advice not a general guide.

A valid will is what lets you leave assets to a spouse or civil partner, or to charity, in the ways that carry exemptions, so making a will is the foundation everything else sits on. Trusts can play a role in how an estate is arranged, but they have their own inheritance tax rules, including periodic and exit charges on certain trusts. They are not a simple way to sidestep tax. Estate planning as a whole is where these pieces come together. For anything specific to your own estate, the right step is regulated advice, not a general guide.

Frequently asked questions

How much can you inherit before paying inheritance tax?

Every estate has a £325,000 nil-rate band taxed at 0%, plus a £175,000 residence nil-rate band where a home passes to direct descendants, giving up to £500,000 for one person. Spouses and civil partners can combine unused allowances, so a couple can often pass up to £1 million tax-free.

Do you pay inheritance tax on a house?

A house forms part of the estate and counts towards the threshold like any other asset. Where a main home passes to direct descendants, the £175,000 residence nil-rate band can apply on top of the standard threshold. Whether tax is actually due depends on the estate’s total value against the available allowances.

What is the 7-year rule on gifts?

Gifts you make during your lifetime usually leave your estate for inheritance tax if you survive seven years after making them. If you die within seven years, the gift may be counted, though taper relief can reduce the tax on gifts made between three and seven years before death. Some smaller gifts are always exempt.

Do spouses pay inheritance tax on what they inherit?

No. Anything left to a spouse or civil partner is completely exempt from inheritance tax, regardless of value. On top of that, the unused portion of the first partner’s nil-rate band transfers to the survivor, which is why couples can often pass on significantly more than a single person before any tax applies.

Is there inheritance tax on gifts to charity?

No. Gifts to UK-registered charities are exempt from inheritance tax entirely. Leaving 10% or more of the net estate to charity also reduces the rate on the rest of the estate from 40% to 36%, which leaving money to charity in a will covers in detail.