For all the worry it causes, inheritance tax (IHT) is paid by only a minority of UK estates — but the number is rising as house prices grow while the thresholds stay frozen. This guide explains inheritance tax in the UK in plain English: the thresholds, the 40% rate, the generous exemptions for spouses and charities, the seven-year rule on gifts, and the practical steps that can legitimately reduce a bill.
Inheritance tax is a tax on the estate — the property, money and possessions — of someone who has died. It can also apply to some gifts made in the years before death. Crucially, most estates pay nothing at all, because the tax-free thresholds are large and transfers between spouses are exempt.
The thresholds: nil-rate bands explained
Everyone has a nil-rate band of £325,000. No inheritance tax is due on the value of an estate below that figure. On top of it sits the residence nil-rate band of up to £175,000, available when you leave your main home to direct descendants — children, grandchildren and stepchildren among them.
Both allowances can be inherited by a surviving spouse or civil partner. That is why you will often hear that a married couple can pass on up to £1 million free of inheritance tax: two nil-rate bands of £325,000 plus two residence bands of £175,000. The residence band is reduced for larger estates, tapering away by £1 for every £2 by which the estate exceeds £2 million. All these figures are currently frozen until April 2030, which means more families are drawn into the tax over time even without becoming wealthier.
The rate, and the exemptions that remove it
Above the available thresholds, inheritance tax is charged at 40%. Two reliefs commonly bring that down or remove it entirely:
- The spouse and civil partner exemption. Anything you leave to a husband, wife or civil partner who is UK-domiciled is completely free of inheritance tax, with no limit. This is the single most important exemption in practice.
- The charity exemption. Gifts to registered charities are tax-free, and if you leave at least 10% of your net estate to charity, the rate on the rest of the taxable estate falls from 40% to 36%.
How you structure all this is a job for your will. A poorly drafted will can waste allowances; a well-drafted one uses them. If you are starting from scratch, see our overview of what estate planning involves.
Gifts and the seven-year rule
Giving assets away during your lifetime is one of the simplest ways to reduce inheritance tax — but timing matters. Most gifts are treated as potentially exempt transfers: if you survive seven years after making the gift, it falls out of your estate entirely. Die within seven years and the gift may be brought back into account.
Where tax is due on a gift made between three and seven years before death, taper reliefcan reduce it on a sliding scale. The gift must be genuine — you cannot, for example, give away your house but carry on living in it rent-free, as that counts as a “gift with reservation of benefit” and remains in your estate.
Several gifts are exempt straight away, with no need to survive seven years:
- An annual exemption of £3,000 of gifts each tax year (and you can carry forward one unused year).
- Small gifts of up to £250 per person per year.
- Wedding or civil partnership gifts, up to set limits depending on your relationship to the couple.
- Regular gifts out of surplus income — a valuable and often-overlooked exemption for gifts you make from income without affecting your standard of living.
Other ways to reduce a bill
Beyond gifting, planning options include leaving money to charity, making the most of business and agricultural reliefs where they apply, taking out life insurance written in trust to cover an expected bill, and using trusts in the right circumstances. Trusts are not a shortcut, though — many carry their own tax charges, and aggressive schemes can cost more than they save. This is firmly an area for tailored advice.
Who pays, and when
Responsibility falls on the executorsnamed in the will (or administrators, if there is no will). They pay the tax from the estate’s assets, generally before probate is granted, and it is usually due by the end of the sixth month after the month of death — with interest charged on anything paid late. Tax on some assets, such as property, can be spread over ten annual instalments.
Inheritance tax planning rewards people who start early, because the most effective tools — surviving the seven-year gift period, regular gifts from income, using allowances each year — all depend on time. A good professional can map your position and the legitimate options open to you; our guide on how to choose a will writer explains how to find one with the right qualifications, such as the STEP credential, to advise on tax as well as drafting.