Inheritance tax: thresholds, rates and who pays

What is inheritance tax?

If you plan to pass on assets or money after you die, your heirs could face a tax bill of up to 40% of your estate.

Your estate is defined as your property, savings and other assets after any debts and funeral expenses have been deducted.

You can reduce or avoid IHT in a number of ways. There's a tax-free allowance, and you can also give away a certain amount of your money during your lifetime, tax-free and without it counting towards your estate.

Video: How inheritance tax works

Our short video explains what makes up your estate, how married couples can pool their allowances, and how the main residence nil-rate band works.

Inheritance tax thresholds and rates 2024-25

Everyone in the 2024-25 tax year has a tax-free inheritance tax allowance of £325,000 - known as the nil-rate band. The allowance has remained the same since 2010-11.

The standard inheritance tax rate is 40% of anything in your estate over the £325,000 threshold.

For example, if you leave behind an estate worth £500,000, the tax bill will be £70,000 (40% on £175,000 - the difference between £500,000 and £325,000).

However, if you're married or in a civil partnership, you may be able to leave more than this before paying tax.

Since April 2017, you've been able to pay less inheritance tax when leaving property to a family member. For the 2024-25 tax year, this transferable allowance is £175,000.

You can find out more in our guide to inheritance tax on property.

• Are you making a will? If you want support, you can make your will and have it reviewed by Which? Wills.

Calculate your inheritance tax bill

Try our calculator to work out how much inheritance tax may be due on your estate.

Do spouses pay inheritance tax?

Married couples and civil partners are allowed to pass their possessions and assets to each other tax-free in most cases.

The surviving partner is allowed to use both tax-free allowances, providing the first spouse to die did not use up their full inheritance tax allowance by giving away a big chunk of money in their will.

In 2024-25, most married couples or civil partners can pass on up to £650,000, or £1m if your estate includes your home, effectively doubling the amount the surviving partner can leave behind tax-free without the need for special tax planning.

However, some people whose partner died before 21 March 1972 will be caught by a loophole which means they don't get a 'double allowance'.

Find out more: inheritance tax for married couples and civil partners: see the benefits to your inheritance tax bill

Gifts and other ways to avoid inheritance tax

Some gifts are usually tax-free. These include gifts between spouses and civil partners, and gifts to charities.

Other gifts are potentially tax-free (known as potentially exempt transfers or PETs) depending on when they were made. Generally, as long as a gift is made more than seven years before your death to an individual - not to a business or a trust - you won't pay tax on it.

If you do die within these seven years, the tax payable on the gift may be reduced, depending on when the gift was made. You can find out more in our guide to inheritance tax planning and tax-free gifts.

There are other ways to avoid inheritance tax, too - including putting your life insurance policy under trust or having a deed of variation in your will.

Trusts can also be a useful way to manage your IHT bill, and keep an element of control over what happens to your assets when you pass away. Find out more in our guide to inheritance tax and trusts.

There are also other options like equity release and life insurance policies: we explain in our guide to avoiding inheritance tax.

• Find out more: How to write life insurance into a trust

Who pays the inheritance tax bill?

Inheritance tax due on money or possessions passed on when you die is usually paid from your estate.

Your estate is made up of everything you own, minus debts, such as your mortgage, and expenses such as funeral expenses.

Heirs must pay IHT by the end of the sixth month after you die. An inheritance tax reference number from HMRC is needed first, and should be applied for at least three weeks before a payment needs to be made.

However, if the tax is due on gifts you made during the last seven years before your death, the people who received the gifts must pay the tax in most circumstances.

If they can't or will not pay, the amount due then comes out of your estate.

To find out more about the legal process of dealing with the estate of someone who has died, check out our probate advice guides.

Do you need to report the value of the estate?

In certain circumstances, you won't need to report the value of the deceased's estate, as it will be counted as an 'excepted estate'.

According to government guidance, most estates are 'excepted'. However, the rules on this will depend on when they died, who they left their assets to, and whether any inheritance tax is due.

If the person died on or before 31 December 2021

An estate will usually be excepted if:

• its value is below the inheritance tax threshold at the time the person died
• the deceased left everything in their estate to a surviving spouse or civil partner who lives in the UK, or to a qualifying registered UK charity and the estate is worth less than £1m
• the deceased had permanently been living outside of the UK when they died, and their UK assets have a value of less than £150,000.

If the person died on or after 1 January 2022

An estate will usually be excepted if:

• its value is below the current inheritance tax threshold
• the estate is worth £650,000 or less and any unused threshold is being transferred from a spouse or civil partner who died first
• the deceased left everything in their estate to their surviving spouse or civil partner who lives in the UK, or to a qualifying registered UK charity and the estate is worth less than £3m
• the deceased had permanently been living outside of the UK when they died, and their UK assets have a value of less than £150,000.

If an estate is counted as being excepted, you won't have to give full details of its value, providing it meets these three criteria:

• it counts as an excepted estate
• there's no inheritance tax to pay
• no other reasons apply that would mean you have to send full details of the estate, even when no tax is due. More on this below.

Instances where you need to send full details of the estate, even if no inheritance tax is due, include:

• if the deceased gave away more than £250,000 in the seven years before they died (or more than £150,000 if they died on or before 31 December 2021)
• if they had foreign assets worth more than £100,000
• if they gave gifts that they continued to benefit from in the seven years before they died.

You can see the full list on gov.uk.

You will still need to report the value of the estate if you're applying for probate - even if it's excepted.