What Is Inheritance Tax?

Inheritance Tax is a tax on the estate of someone who’s died. 

There’s normally no Inheritance Tax to pay if either: 

  • The value of the estate is below the £325,000 threshold, or;
  • Everything above the £325,000 threshold is left to a spouse, civil partner or a charity. 

Whether you need to pay and how much depends on the value of the deceased person’s estate. This could include: their home and its contents, money, cars, shares and a business. 

You’ll also need to know about any money the deceased person owed, such as credit card bills, utilities, mortgage, as well as any money that is owed to the deceased. 

The standard Inheritance Tax rate is 40%. It’s only charged on the part of the estate that’s above the threshold. 

If the deceased owned their home, or a share in it, the tax-free threshold can be increased by £175,000 to £500,000 if the property is left to their children (including adopted, foster or stepchildren) or to their grandchildren and the estate is worth less than £2 million. When the estate is worth more than £2 million, the tax-free threshold is reduced or tapered away. 

If the deceased’s home is passed on to their husband, wife or civil partner then there’s no Inheritance Tax to pay. 

If the deceased’s estate doesn’t use up all its tax-free allowance, then the remaining allowance can be transferred to their surviving spouse or civil partner. 

You have 24 months after the end of the month in which the person died to make the claim. 

You can find more information about Inheritance Tax on GOV.UK.