Inheritance Tax (IHT)
Tax on estates above £325,000 when someone dies. Currently 40% on the excess, with exemptions for spouses and some gifts to charities.
Inheritance Tax (IHT) is a tax on the estate of someone who has died. The current rules (2026):
Key Thresholds
- Nil-rate band: £325,000 (no IHT on first £325,000)
- Residence nil-rate band: Additional £175,000 if leaving home to direct descendants
- Combined: Up to £500,000 per person, £1 million for married couples
- Rate: 40% on anything above the threshold (36% if 10%+ left to charity)
What's Exempt from IHT
- Transfers between spouses/civil partners (unlimited)
- Gifts to UK charities
- Gifts made more than 7 years before death
- Annual exemption: £3,000 per year
- Small gifts: up to £250 per person per year
- Wedding gifts (up to £5,000 for a child)
- Business Property Relief (potentially 100%)
- Agricultural Property Relief
Planning Opportunities
With proper planning, many families can significantly reduce or eliminate IHT through gifts, trusts, and careful use of exemptions.
Common questions
When is inheritance tax paid?
IHT must be paid within 6 months of death, or interest is charged. Some can be paid by instalments for property or business assets.
Do I pay tax on money I inherit?
No, beneficiaries don't pay IHT directly. It's paid from the estate before distribution. You may pay income tax on ongoing income from inherited assets.
Can I avoid inheritance tax by giving my house away?
It's complex. If you continue living there, it's a "gift with reservation" and still counts. You must pay rent at market rate for 7+ years for it to work.
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