Inheritance Tax Explained: Rates, Thresholds and How It Works

Inheritance tax is a tax on the estate (the property, money and possessions) of someone who has died. The standard rate is 40%, and it is charged only on the value of an estate above the available tax-free thresholds, not on the whole estate.

Many estates pay no inheritance tax at all, because the value falls within the tax-free allowances or passes to an exempt beneficiary such as a spouse or civil partner. This guide explains the thresholds, the rate, how gifts are treated, who settles the bill and when, and where families commonly take advice. Figures are current as at June 2026 and are subject to change. For a broader picture of how tax fits alongside wills and powers of attorney, see our estate planning guide.

What is inheritance tax?

Inheritance tax is a charge on the value of a person's estate when they die, and sometimes on certain gifts made in the years before death. In England and Wales the standard rate is 40%, applied only to the portion of the estate above the tax-free thresholds (gov.uk, as at June 2026, subject to change). Beneficiaries do not normally pay tax on what they personally receive.

The estate includes the home, savings, investments, vehicles, personal possessions and, in many cases, certain gifts made in the seven years before death. Some assets and transfers are exempt, and several reliefs can reduce the taxable value. How the rules apply depends on the make-up of the estate and the family.

The tax-free thresholds

Every person has a nil-rate band of £325,000, the amount of an estate that can pass free of inheritance tax. A separate residence nil-rate band of up to £175,000 can apply where a main home passes to children or grandchildren, lifting a single person's combined threshold to as much as £500,000 (gov.uk, as at June 2026, subject to change). Values above the available threshold are taxed.

Source: gov.uk/inheritance-tax, as at June 2026. The nil-rate band, residence nil-rate band and taper threshold are frozen until the end of the 2030-31 tax year (5 April 2031) (gov.uk), subject to change. The residence band reduces by £1 for every £2 of estate value above £2,000,000.

These frozen thresholds are why more estates gradually come within the scope of the tax, as property and investment values tend to rise while the allowances stay the same. For a fuller breakdown of each allowance and how the residence band works, see Inheritance Tax Thresholds and Allowances 2026/27.

Inheritance tax rates

The standard inheritance tax rate is 40%, charged on the value of the estate above the available tax-free thresholds. A reduced rate of 36% can apply where 10% or more of the net estate is left to charity (gov.uk, as at June 2026, subject to change). Some gifts made within seven years of death may also be taxed, sometimes at a lower figure through taper relief.

Inheritance tax and married couples

Transfers between spouses and civil partners are generally exempt from inheritance tax, whether made during life or on death. When the first partner dies, any unused nil-rate band and residence nil-rate band can pass to the survivor, so a couple can potentially pass on up to £1,000,000 before tax where a home goes to children (gov.uk, as at June 2026, subject to change). This spousal exemption does not apply to unmarried partners.

Because unused allowances transfer, many couples find that little or no tax arises on the first death, with any charge falling on the second death. The way the two estates interact matters, and the detail is set out in inheritance tax when the second parent dies.

Who pays inheritance tax, and when

Inheritance tax is paid from the estate itself, usually by the person dealing with the estate, called the executor where there is a will or the administrator where there is not. Beneficiaries do not normally pay tax on what they personally inherit (gov.uk, as at June 2026, subject to change). In some cases the person who received a lifetime gift can become liable for tax on that gift.

Any inheritance tax is generally due by the end of the sixth month after the person died, and HMRC can charge interest on late payment (gov.uk/paying-inheritance-tax, as at June 2026, subject to change). Tax on some assets, such as property, can often be paid in annual instalments. Because the tax may be due before assets like a house are sold, families sometimes plan ahead for how the bill will be met.

Inheritance tax is charged on the estate, not on the individual beneficiary. Planning is often about the size of that estate, and about making sure funds are available to settle any bill.

Ways families reduce inheritance tax

There are lawful ways many people use to reduce a potential inheritance tax bill, though none guarantees a particular result and the rules change. Common approaches include making full use of the nil-rate and residence nil-rate bands, using the spouse exemption, making exempt or well-timed lifetime gifts, leaving gifts to charity, and considering reliefs such as those for some business or agricultural assets. Suitability depends entirely on circumstances.

• Using both partners' allowances through the spouse and civil partner exemption
• Making regular use of exempt gifts, such as the annual exemption
• Considering the seven-year rule for larger lifetime gifts
• Leaving 10% or more of the net estate to charity to access the 36% rate
• Reviewing whether any business or agricultural reliefs may apply

Each of these carries conditions and trade-offs, and giving assets away can have consequences beyond tax. It can be worth discussing options with a qualified professional before acting. Our guide on how to reduce inheritance tax legally looks at the main routes in more detail.

Inheritance tax across the UK

Inheritance tax is a UK-wide tax, so the same rates and thresholds apply in England, Wales, Scotland and Northern Ireland. What differs between the nations is the surrounding law of succession and the process after death. Scotland uses confirmation rather than a grant of probate and has its own succession rules, including legal rights that can give a spouse and children a fixed share. Northern Ireland has a separate but broadly similar system to England and Wales. Where an estate touches more than one jurisdiction, it can be worth taking advice in each.

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