How Much Inheritance Tax Do You Pay in the UK?

When someone passes away, their estate may be subject to Inheritance Tax (IHT). One of the most common questions asked is: how much inheritance tax do you pay? Understanding this is crucial for effective estate planning, especially if you’re looking to protect assets for future generations. This article explores IHT thresholds, rates, exemptions, and planning strategies to help you make informed decisions.

If you’re unsure how to manage your estate to minimise tax liabilities, book a free consultation with our expert team. You can also explore our transparent pricing for estate planning services.

Understanding How Much Inheritance Tax You Pay

Inheritance Tax is a tax on the estate (property, money, and possessions) of someone who has died. The current threshold, or “nil-rate band,” is £325,000. If your estate is valued below this amount, no IHT is due. But if it exceeds this figure, your heirs could be liable to pay a significant sum.

So, how much inheritance tax do you pay? Typically, 40% is charged on the value of the estate above the nil-rate band, unless it qualifies for reliefs or exemptions.

What’s Included in an Estate?

Everything owned by the deceased forms part of their estate. This includes:

• Property (main residence or other properties)
• Bank accounts
• Investments and shares
• Personal possessions (cars, jewellery, etc.)
• Life insurance policies not held in trust

The total value of these assets minus any debts (like mortgages or loans) determines the taxable estate.

Inheritance Tax Thresholds and Rates

The standard inheritance tax threshold is £325,000. However, additional allowances may apply:

Residence Nil-Rate Band (RNRB)

If you leave your home to your children or grandchildren, you may benefit from the Residence Nil-Rate Band (RNRB), which adds up to £175,000 to your tax-free threshold. Combined with the standard allowance, a couple could pass on up to £1 million tax-free.

Learn more about allowances and exemptions on the official HMRC Inheritance Tax Guide.

When Do You Need to Pay Inheritance Tax?

IHT is typically due within six months of the person’s death. If payment is delayed, interest may be charged. Executors are responsible for paying IHT before distributing assets to beneficiaries. This often involves selling property or using funds from the estate.

Wondering how much inheritance tax do you pay if you’re a beneficiary? While the estate pays the tax, it ultimately affects what beneficiaries receive. So planning ahead is essential.

Gifts and Inheritance Tax

If the deceased made gifts during their lifetime, these could also be subject to IHT depending on when they were given. Gifts made within seven years of death may be taxed on a sliding scale. You can read more in our article on inheritance tax and lifetime gifts.

Who Pays Inheritance Tax in the UK?

Generally, the executor or administrator of the estate handles the tax payment. However, beneficiaries may need to pay tax directly if they received specific gifts that are not part of the residual estate, such as life insurance payouts not written in trust.

Trusts and Inheritance Tax

Some people place assets in a trust to reduce IHT liabilities. Trusts can be effective tools, especially when used with professional guidance, but they are subject to their own set of rules and charges.

Find out more about the role of trusts in this MoneyHelper article.

Reducing How Much Inheritance Tax You Pay

While IHT can’t always be avoided, there are several strategies to reduce your liability. These include:

1. Make Use of Allowances

• Annual gift allowance (£3,000 per year)
• Small gifts allowance (£250 per person)
• Wedding gift allowances

2. Give to Charity

Any amount left to a registered UK charity is exempt from IHT. If you leave at least 10% of your estate to charity, the IHT rate on the rest drops to 36%.

3. Use Life Insurance Policies

Taking out a life insurance policy and placing it in trust can help cover IHT costs without increasing your estate’s value.

4. Consider Business or Agricultural Relief

Certain business and agricultural properties qualify for relief of up to 100%, reducing the taxable value of your estate.

Examples: How Much Inheritance Tax Do You Pay?

Example 1: If your estate is worth £500,000 and you leave everything to your children, your taxable estate is £175,000 after the £325,000 threshold. The IHT due would be 40% of £175,000 = £70,000.

Example 2: If you also qualify for the RNRB (£175,000), the entire estate is covered, and no tax is due.

Need help calculating your estate’s potential IHT bill? Our experts can help. Book a consultation today.

Common Misconceptions About Inheritance Tax

• “Only the rich pay IHT” – False. Rising house prices mean many average families now exceed the threshold.
• “You don’t pay IHT on anything under £1 million” – False. This only applies if both RNRB and standard allowances apply and assets are left to direct descendants.
• “Gifts are always tax-free” – Not if made within seven years of death.

Inheritance Tax and Estate Planning

Effective estate planning can significantly reduce the amount of IHT your beneficiaries will need to pay. Working with a professional advisor ensures that all allowances, exemptions, and tools—like trusts—are used properly.

Visit our Inheritance Tax Planning page to learn more about how we help clients protect their wealth.

Conclusion

So, how much inheritance tax do you pay? It depends on your estate’s value, who inherits it, and what planning you’ve done in advance. With proper guidance, you can reduce or eliminate tax liabilities—ensuring your loved ones receive the maximum benefit from your estate.

Need support calculating your IHT liability or creating a tax-efficient estate plan? Book your free consultation now or explore our pricing options today.