Inheritance Tax

What is Inheritance Tax?

Inheritance Tax (IHT) is a tax on the estate — the property, money and possessions — of someone who has died. In England and Wales it is charged at 40% on the value of your estate above your available tax-free allowances. The crucial word there is "available": most estates fall entirely within the allowances and pay nothing at all. IHT matters because the thresholds have been frozen for years while house prices and savings have risen, so a growing number of ordinary families — not just the wealthy — are being drawn into the net for the first time.

The tax is usually paid by the executor or personal representative from the estate before assets are distributed to beneficiaries, not by the people who inherit. Understanding how the allowances work, and planning ahead, is the difference between a large bill and none at all. Our complete guide to IHT in 2026 walks through every part of the system in detail; this overview gives you the essentials and points you to the right next step.

The allowances: how much can pass tax-free

Every individual has a nil-rate band of £325,000, frozen until April 2030. Anything in your estate up to that figure is taxed at 0%. On top of this, there is a residence nil-rate band of up to £175,000 when your main home passes to direct descendants — children, stepchildren, grandchildren and so on. This residence allowance is tapered away for larger estates, reducing by £1 for every £2 your estate exceeds £2 million.

The most important feature for couples is that allowances transfer. A married couple or civil partners can combine their bands so that up to £1 million can pass free of Inheritance Tax in the right circumstances — two nil-rate bands of £325,000 plus two residence nil-rate bands of £175,000. When the first partner dies, any unused proportion of their allowances passes to the survivor, to be used on the second death. Because these rules are nuanced and depend on owning a qualifying home and leaving it to descendants, it pays to understand exactly where you stand. Our guide to the nil-rate band, thresholds and allowances explains how to calculate your own position.

One further point of relief: if you leave 10% or more of your estate to charity, the rate on the remainder falls from 40% to 36%.

Who needs to think about Inheritance Tax?

You should give IHT serious thought if any of the following apply:

• Your estate — including your home, savings, investments and possessions — is worth more than your available allowances.
• You own property in an area where values have risen sharply, pushing you over the thresholds.
• You are single, widowed or divorced, and so cannot rely on a partner's transferable allowances.
• You have a sizeable pension pot. From April 2027, most unused pension funds are expected to fall within the IHT net under announced government policy — a significant change that could affect many families who currently assume their pension passes free of tax. Our guide on pensions joining the IHT net in 2027 explains what this means and what you can do.
• You want to make substantial gifts during your lifetime and need to understand the rules.

Even if you are confident your estate is below the threshold today, frozen allowances and rising asset values mean it is worth reviewing your position every few years.

How the process works

When someone dies, the executor (if there is a will) or administrator (under the intestacy rules) values the estate and reports it to HM Revenue & Customs. Where tax is due, it must generally be paid before probate is granted — the legal authority to deal with the estate, issued by HM Courts & Tribunals Service. Where there is no will, the personal representatives apply for Letters of Administration. IHT on property can often be paid in instalments over up to ten years, but tax on most other assets is due within six months of the end of the month of death, after which interest accrues.

The order of events is important: valuing assets, calculating allowances, settling the tax, obtaining probate, then distributing what remains to beneficiaries. Getting the valuation and the allowance claims right at the outset avoids costly corrections later.

Reducing your Inheritance Tax bill

There are many entirely legal ways to reduce or eliminate an IHT liability, and the earlier you start, the more options you have. These include making use of annual gift exemptions, giving away assets and surviving seven years, leaving money to charity, using trusts, and structuring your will to capture every allowance. Our guide on 10 legal ways to cut your IHT bill sets out the practical strategies.

The 7-year rule and lifetime gifts

Gifting is one of the most powerful tools. Most lifetime gifts fall outside your estate entirely if you survive seven years from the date of the gift. If you die between three and seven years after giving, taper relief reduces the tax due on a sliding scale. Alongside this, everyone has a range of smaller exemptions — an annual allowance, small gifts, wedding gifts and gifts out of surplus income — that can be used straight away without any waiting period. Our guide to gifts and what you can give tax-free explains how to use these without falling foul of the rules on "gifts with reservation".

Common mistakes to avoid

• Assuming you are exempt because you are married. The spouse exemption defers tax to the second death — it does not remove it. Planning still matters.
• Forgetting the residence nil-rate band conditions. It only applies when a qualifying home passes to direct descendants, and is lost if you downsize without keeping records or leave the home elsewhere.
• Giving away your home but continuing to live in it rent-free. This is a "gift with reservation of benefit" and the property stays in your estate.
• Overlooking pensions. With the 2027 changes approaching, old assumptions about pensions being IHT-free need revisiting.
• Leaving an out-of-date or DIY will. A poorly drafted will can waste allowances and create unnecessary tax.

What does planning cost?

The cost of IHT planning varies with complexity — a will that simply captures both spouses' allowances costs far less than advice involving trusts or substantial lifetime gifting. The point is that the right advice almost always saves multiples of its cost in tax. The difficulty for most people is knowing what a fair fixed price looks like, and finding a qualified, trustworthy professional nearby.

How Ask an Estate Planner helps

Ask an Estate Planner is a free and independent comparison service. We let you compare fixed-price quotes from BCEP-trained estate planners covering your area, so you can see clearly what your wills, trusts, LPAs or estate administration will cost before you commit — no hourly surprises, no obligation. Because we are independent, we do not push one provider over another; we simply match you with qualified planners who can help you make the most of your allowances and protect what you have built. Start with our complete guide to Inheritance Tax, then compare planners covering your area when you are ready to act.