What is Inheritance Tax?

Inheritance Tax (IHT) is a tax on the estate of someone who has died, including all property, possessions and money. The standard Inheritance Tax rate is 40%. It’s only charged on the part of your estate that’s above the tax-free threshold which is currently £325,000.

How much is Inheritance tax?

There is normally no tax to be paid if:

the value of your estate is below the £325,000 threshold known as the nil rate band
you leave everything above the threshold to your spouse or civil partner, or
you leave everything above the threshold to an exempt beneficiary, such as a charity or a community amateur sports club, or
if you give away your home to your children or grandchildren your threshold can increase to £500,000.

Did you know?

Only 1 in 20 estates in the UK pay Inheritance Tax. -HMRC

If the value of your estate is above the £325,000 threshold, the part of your estate above it might be liable for tax at the rate of 40%.

So, if your estate is worth £525,000 and your IHT threshold is £325,000, the tax charged will be on £200,000 (£525,000 – £325,000). The tax would be £80,000 (40% of £200,000).

What is Included in Inheritance Tax?

Inheritance Tax payable on death is based on the value of your estate when you die. This will include:

Everything you own at the date of your death
Your share of anything owned jointly with your spouse or any other person
The value of any trust fund from which you are entitled to benefit
The value of any gifts made by you in the last seven years before you die and which are not covered by any exemptions
The value of any assets which you have given away but still get a benefit from