Inheritance Tax Explained Simply

Inheritance tax (IHT) is a tax on the estate of someone who has died — broadly, everything they owned minus what they owed, including property, savings, investments, and possessions. Despite its reputation, most estates in the UK do not end up paying any inheritance tax at all, largely because of allowances that reduce or eliminate the taxable amount for many people.

The basic principle

Every estate has a tax-free allowance (the "nil-rate band"), below which no inheritance tax is due at all. There is also an additional allowance specifically for passing on a main residence to direct descendants (children or grandchildren), which can increase the tax-free amount further for many families. Both allowances change periodically and have specific conditions attached, so rather than quoting figures likely to go out of date, the reliable source is the current detail on GOV.UK.

What counts towards your estate

Your taxable estate generally includes property, savings, investments, business assets, and personal possessions, minus outstanding debts such as a mortgage. Certain assets and gifts can be excluded or relieved in specific circumstances — for example, assets left to a spouse, civil partner, or charity are generally exempt from inheritance tax entirely, regardless of value.

Gifts made during your lifetime

Inheritance tax isn't only about what you own when you die — gifts made in the years before death can also be brought back into account under specific rules (sometimes called the "seven-year rule"), tapering off the longer before death the gift was made. This is one of the more commonly misunderstood areas, and a reason why lifetime gifting as a tax-planning strategy is worth discussing with a professional rather than assuming a gift is automatically outside your estate.

Who actually pays it, and when

Inheritance tax is generally paid from the estate itself, before assets are distributed to beneficiaries — it isn't typically a bill sent directly to the people inheriting. It's usually reported and at least partly paid as part of the probate process (see our probate guide), which is why probate can be delayed while inheritance tax matters are resolved.

The spouse and civil partner exemption

Assets left to a spouse or civil partner are exempt from inheritance tax regardless of value, and any unused nil-rate band from the first spouse or partner to die can typically be transferred to increase the surviving partner's own allowance later — a detail that makes wills between married couples and civil partners particularly important to get right.

Reducing an inheritance tax bill legitimately

Common legitimate approaches include lifetime gifting (subject to the seven-year rule), leaving a portion of the estate to charity (which can also reduce the tax rate applied to the rest in some circumstances), and certain trust structures. Because getting this wrong can be costly and because the rules interact in non-obvious ways, inheritance tax planning for anything beyond a straightforward estate is a genuine case for paying a solicitor or financial adviser rather than guessing.

This is general information about the law in England and Wales, not personalised legal advice. Rules, thresholds and processes change, and Scotland and Northern Ireland have different rules in places — for anything that depends on your own circumstances, it is worth speaking to a solicitor (ideally one accredited by STEP or Solicitors for the Elderly) or checking GOV.UK and Citizens Advice for current detail.