Inheritance Tax Basics
Inheritance Tax (IHT) is a tax on the estate of someone who has died. Not all estates pay inheritance tax, but as an executor or administrator, you need to understand the basics to complete the necessary forms and determine if tax is due.
- IHT threshold is £325,000 (nil-rate band) – frozen until 2030
- Additional residence nil-rate band of £175,000 may apply
- Tax rate is 40% on amounts above the threshold
- Gifts to spouses and charities are usually exempt
- Some gifts made in the 7 years before death may be taxable
- IHT must usually be paid before probate is granted
- From April 2027: Unused pension funds will be included in estates for IHT
Significant inheritance tax changes are being introduced. See our Autumn Budget 2025 guide for the latest updates on what's changing for bereaved families.
Do you need to pay inheritance tax?
Inheritance tax is only payable if the estate is worth more than the tax-free threshold. For 2025/26, the thresholds are:
- Nil-rate band: £325,000 (frozen until April 2030)
- Residence nil-rate band: £175,000 (additional threshold when passing family home to children/grandchildren)
- Combined maximum: £500,000 per person
- Married couples/civil partners: Up to £1,000,000 combined (unused allowances transfer to surviving spouse)
These thresholds have been frozen since 2009 and will remain frozen until at least 2030. Learn more about the impact of frozen thresholds.
Inheritance Tax Checklist
Assessment and Planning
- Get professional valuations for all assets in the estate
- Check for gifts made in the 7 years before death
- Calculate total IHT liability using HMRC tools or professional help
- Complete appropriate IHT forms (IHT205 or IHT400)
Upcoming changes to inheritance tax
Several significant changes to inheritance tax are being introduced over the coming years:
- April 2025: HMRC interest on unpaid IHT rises to 8.75%
- April 2026: Business and agricultural property relief capped at £1 million for 100% relief; AIM shares relief reduced to 50%
- April 2027: Unused pension funds brought into IHT scope – read our detailed guide
For full details on all changes, see our Autumn Budget 2025 guide for bereaved families.
Related Guides
Autumn Budget 2025: IHT Changes
Latest inheritance tax changes affecting bereaved families from 2025 onwards.
Pensions and Inheritance Tax: 2027 Changes
How unused pension funds will be included in estates from April 2027.
The 7-Year Gifting Rule Explained
Understanding how gifts made before death affect inheritance tax.
IHT Thresholds Frozen Until 2030
Impact of frozen inheritance tax thresholds on UK families.
Probate Guide UK 2025
Complete guide to applying for probate and administering an estate.
Valuing an Estate for Probate
How to value assets and liabilities when applying for probate.
What If There's No Will (Intestacy)
UK intestacy rules when someone dies without a valid will.
Do I Need Probate?
Understanding when probate is required and when it's not necessary.
Don't let IHT overwhelm you
Inheritance tax can seem complicated, but many estates don't actually pay any tax. HMRC provides helpful guidance and there are professionals who can help with complex situations.
Focus on getting accurate valuations first - this will determine whether IHT is even payable and how much you might need to pay.
Frequently Asked Questions
How much can you inherit before paying inheritance tax in the UK?
The inheritance tax threshold is £325,000 (nil-rate band). An additional residence nil-rate band of £175,000 applies when passing your family home to children or grandchildren, giving a combined maximum of £500,000 per person. Married couples can combine allowances for up to £1 million tax-free.
What is the inheritance tax rate in the UK?
Inheritance tax is charged at 40% on the value of an estate above the tax-free threshold. The rate may be reduced to 36% if at least 10% of the estate is left to charity. There is no inheritance tax on gifts to spouses or civil partners.
Do I have to pay inheritance tax before getting probate?
Yes, inheritance tax must usually be paid before probate is granted. You need to pay any IHT due within 6 months of the death. However, you can pay in instalments over 10 years for certain assets like property. Some banks will release funds directly to HMRC before probate to pay the tax bill.
Are gifts made before death subject to inheritance tax?
Gifts made in the 7 years before death may be subject to inheritance tax. Gifts in the 3 years before death are taxed at the full 40% rate. Gifts made 3-7 years before death benefit from taper relief, reducing the tax rate gradually. Some gifts are exempt, including £3,000 annual gift allowance and small gifts under £250.
What IHT form do I need to complete?
For estates worth less than £325,000 with no complications, you complete form IHT205 or IHT421. For estates exceeding the nil-rate band or with more complex assets, you must complete the full form IHT400 along with relevant supplementary pages. All forms must be submitted before applying for probate.
Will pensions be included in inheritance tax from 2027?
Yes, from April 2027, unused pension funds will be brought into the scope of inheritance tax. This is a major change announced in the Autumn Budget 2025. Previously, pensions could be passed on tax-free outside the estate, but this will no longer apply to deaths from April 2027 onwards.
Related Guides
You might also find these guides helpful
Autumn Budget 2025: What Actually Changed for Inheritance Tax
The November 2025 Budget confirmed IHT changes. Learn what was announced, what the rumours got wrong, and what it means for bereaved families.
Pensions and Inheritance Tax: The 2027 Changes
From April 2027, unused pension funds will be subject to inheritance tax. Learn what's changing and how it affects bereaved families.
Farm Inheritance Tax: APR and BPR Changes Explained
From April 2026, Agricultural Property Relief is capped at £1 million. Learn how this affects family farms and what executors need to know.