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How Inheritance Tax works

Inheritance Tax is levied on the estate of a deceased individual, with no tax due if the estate's value is below £325,000 or if assets above this threshold are left to a spouse, civil partner, charity, or community sports club. The standard tax rate is 40% on the value exceeding the threshold, with potential reductions available for charitable donations and certain reliefs. Executors are responsible for paying the tax to HMRC, while beneficiaries typically do not pay tax on inherited assets unless specific conditions apply.

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4 views

How Inheritance Tax works

Inheritance Tax is levied on the estate of a deceased individual, with no tax due if the estate's value is below £325,000 or if assets above this threshold are left to a spouse, civil partner, charity, or community sports club. The standard tax rate is 40% on the value exceeding the threshold, with potential reductions available for charitable donations and certain reliefs. Executors are responsible for paying the tax to HMRC, while beneficiaries typically do not pay tax on inherited assets unless specific conditions apply.

Uploaded by

tetiana.kashyna
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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How Inheritance Tax works: thresholds,

rules and allowances


Overview
Inheritance Tax is a tax on the estate (the property, money and possessions) of
someone who’s died.

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

 the value of your estate is below the £325,000 threshold


 you leave everything above the £325,000 threshold to your spouse, civil
partner, a charity or a community amateur sports club
You may still need to report the estate’s value even if it’s below the threshold.

If you give away your home to your children (including adopted, foster or
stepchildren) or grandchildren your threshold can increase to £500,000.

If you’re married or in a civil partnership and your estate is worth less than your
threshold, any unused threshold can be added to your partner’s threshold when
you die.

This guide is also available in Welsh (Cymraeg).

Inheritance Tax rates

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

Example
Your estate is worth £500,000 and your tax-free threshold is £325,000. The
Inheritance Tax charged will be 40% of £175,000 (£500,000 minus £325,000).

The estate can pay Inheritance Tax at a reduced rate of 36% on some assets if
you leave 10% or more of the ‘net value’ to charity in your will. (The net value is
the estate’s total value minus any debts.)

Reliefs and exemptions

Some gifts you give while you’re alive may be taxed after your death. Depending
on when you gave the gift, ‘taper relief’ might mean the Inheritance Tax charged
on the gift is less than 40%.

Other reliefs, such as Business Relief, allow some assets to be passed on free
of Inheritance Tax or with a reduced bill.
Contact the Inheritance Tax helpline about Agricultural Relief if your estate
includes a farm or woodland.

Who pays the tax to HMRC

Funds from your estate are used to pay Inheritance Tax to HM Revenue and
Customs (HMRC). This is done by the person dealing with the estate (called the
‘executor’, if there’s a will).

Your beneficiaries (the people who inherit your estate) do not normally pay tax
on things they inherit. They may have related taxes to pay, for example if they
get rental income from a house left to them in a will.

People you give gifts to might have to pay Inheritance Tax, but only if you give
away more than £325,000 and die within 7 years.

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