The full breakdown below shows the effective rate rising across the middle bands and then falling back for the largest estates. Each figure is a published HMRC average effective tax rate for taxpaying estates in the 2022 to 2023 tax year.
| Net estate value band | Effective rate | Average tax per estate |
|---|
| £300,000 to £400,000 | 4% | £13,500 |
| £1,000,000 to £1,500,000 | 12% | £153,000 |
| £1,500,000 to £2,000,000 | 19% | £322,000 |
| £2,000,000 to £7,500,000 (peak) | 24% | not stated |
| £7,500,000 to £10,000,000 | 20% | not stated |
| Above £10,000,000 | 17% | £3.63 million |
| All taxpaying estates | 13% | £212,000 |
All rows per HMRC, Inheritance Tax liabilities statistics, commentary, tax year 2022 to 2023. UK-wide. Bands where HMRC does not publish an average tax figure are marked "not stated". As at July 2026, subject to change.
Why the 40% rate rarely bites in full
The effective rate stays below 40% because the headline applies only to what is left after the tax-free thresholds, reliefs and exemptions are taken off. On the smallest taxpaying estates the effect is dramatic: those valued at £300,000 to £400,000 paid an average effective rate of just 4%, an average bill of £13,500 (HMRC, as at July 2026, subject to change).
At the top of the scale the rate falls again, which can seem counter-intuitive. HMRC explains that the very largest estates often make proportionately greater use of available reliefs, such as business property relief, than smaller estates do, which pulls their effective rate down to 20% for estates of £7.5 million to £10 million and 17% above £10 million (HMRC, as at July 2026, subject to change). These reliefs are legitimate parts of the tax system rather than avoidance schemes, and how they apply depends heavily on the assets held, so it can be worth discussing them with a qualified professional.
What the numbers mean
Read together, these figures suggest the 40% headline overstates what most taxed estates actually pay. The average effective rate of 13% means a typical taxpaying estate hands over roughly one pound in eight of its net value, not two in five, and even the peak band tops out at 24% (HMRC, as at July 2026, subject to change).
The shape of the curve is worth pausing on. The rate rises through the middle of the range partly because the residence nil-rate band is tapered away, with none available once an estate reaches £2.7 million, then falls at the top as reliefs weigh more heavily (HMRC, as at July 2026, subject to change). One reading is that the system is progressive up to a point and then flattens where reliefs concentrate. These are averages across thousands of estates, though, and any single estate can sit well above or below its band average depending on its mix of property, business assets and charitable gifts. What the effective rate would be for a particular estate depends entirely on its own circumstances, so it can be worth discussing the figures with a qualified professional rather than reading a band average as a personal outcome.
The effective rate across the UK
Inheritance Tax is a UK-wide tax, so the 40% headline rate, the £325,000 nil-rate band and the up to £175,000 residence nil-rate band apply the same way in England, Wales, Scotland and Northern Ireland (gov.uk, as at July 2026, subject to change). The HMRC effective-rate figures are UK-wide totals and are not broken down by nation. What differs is the surrounding succession law: Scotland in particular has its own rules, including legal rights for spouses, civil partners and children that can apply regardless of a will, which can change how an estate is divided even though the tax rates are the same.
Sources and methodology
Every figure on this page comes from a named official source and was checked against that source before publication. No number has been estimated, rounded beyond the source, or extrapolated. HMRC defines the average effective tax rate as the percentage of net wealth transferred at death that a taxpaying estate pays in Inheritance Tax. The sources used are listed below with their reference periods.
- Effective rate overall and by estate band, taxpaying estates, share of deaths, average tax, total liabilities: HMRC, Inheritance Tax liabilities statistics, commentary, tax year 2022 to 2023 (13% average effective rate; 4% at £300k to £400k with £13,500 average; 12% at £1m to £1.5m with £153,000 average; 19% at £1.5m to £2m with £322,000 average; 24% at £2m to £7.5m; 20% at £7.5m to £10m; 17% above £10m with £3.63m average; residence nil-rate band withdrawn by £2.7m; 31,500 taxpaying estates; 4.62% of deaths; £212,000 average tax; £6.70 billion liabilities). UK-wide.
- Core rates and allowances: gov.uk, Inheritance Tax (40% standard rate, 36% reduced charity rate, £325,000 nil-rate band, up to £175,000 residence nil-rate band). As at July 2026.
Frequently asked questions
What is the effective rate of Inheritance Tax?
The effective rate is the share of an estate's net wealth that is actually paid in Inheritance Tax, which HMRC calls the average effective tax rate. Across all taxpaying estates in 2022 to 2023 it averaged 13%, well below the 40% headline rate, because reliefs, exemptions and tax-free thresholds reduce the taxable amount (HMRC, as at July 2026, subject to change).
Why is the effective rate lower than 40%?
Because the 40% rate applies only to the value above the tax-free thresholds, after reliefs and exemptions. Each estate has a £325,000 nil-rate band and, where a home passes to direct descendants, a residence nil-rate band of up to £175,000, so much of an estate can fall outside the charge (gov.uk, as at July 2026, subject to change). The result is an average effective rate of around 13% on taxed estates.
Does the effective rate rise with estate size?
Generally yes, up to a point. It rose from about 4% on estates of £300,000 to £400,000 to a peak of 24% for estates worth £2 million to £7.5 million, then eased to 20% and 17% for larger estates as reliefs weighed more heavily (HMRC, as at July 2026, subject to change).
Why does the effective rate fall on the very largest estates?
HMRC attributes this to the largest estates often making proportionately greater use of reliefs such as business property relief than smaller estates do, which lowers their effective rate to 17% above £10 million (HMRC, as at July 2026, subject to change). These are legitimate reliefs, and how they apply depends on the assets held.
How much does a typical taxed estate actually pay?
Among the minority of estates that pay Inheritance Tax, the average was £212,000 in the 2022 to 2023 tax year, at an average effective rate of 13% against the 40% headline (HMRC, as at July 2026, subject to change). Only 4.62% of UK deaths that year resulted in a charge, so most estates paid nothing.
Is the effective rate the same across the UK?
The rates and thresholds are, because Inheritance Tax is UK-wide, so the 40% headline and the £325,000 nil-rate band apply the same in all four nations (gov.uk, as at July 2026, subject to change). The HMRC effective-rate figures are UK-wide totals not split by nation. Succession law differs, though, with Scotland applying its own legal rights that can change how an estate is divided.
About Fairchild Oldfield
The Fairchild Oldfield team brings together estate planning, tax, independent financial advice and client care, working with families across England and Wales.
Fairchild Oldfield are estate planning specialists and will writers, not a firm of solicitors. This article is general information based on practical experience, not legal, tax or financial advice.
Important: This article is general information only and is not legal, tax or financial advice. Reading it does not create a professional relationship. It is based on the law of England and Wales, and other UK jurisdictions may differ. Figures and rules are current as at July 2026 and are subject to change. Before acting, many people choose to seek advice from a suitably qualified professional, such as a solicitor, a STEP practitioner, an accountant, or an FCA-authorised financial adviser, who can consider your individual circumstances.
