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How much inheritance tax will I pay? It is one of the most common questions we are asked, and the arithmetic is simpler than most people expect. This is a plain English guide to how the bill is worked out, what reduces it, and who actually pays it.
If you want a quick estimate before reading on, try our free inheritance tax calculator.
Key takeaways
- Inheritance tax is charged at 40%, but only on the value of your estate above your allowances.
- Most people have a £325,000 nil-rate band, plus up to £175,000 more if a home passes to children or grandchildren.
- A married couple can combine allowances to pass on up to £1 million with no inheritance tax.
- Anything left to a spouse or civil partner is exempt, whatever the value.
- Allowances are frozen until April 2031, so rising asset values pull more estates into charge each year.
- From April 2027, most unused pension funds count as part of your estate.
The short answer
Inheritance tax is charged at 40% on the value of your estate above your available allowances. Most people have a nil-rate band of £325,000. If you leave your home to children or grandchildren, a residence nil-rate band of up to £175,000 can be added on top. That takes many individuals to £500,000, and a married couple or civil partners can combine their allowances to pass on up to £1 million before any inheritance tax is due.
Anything above that is generally taxed at 40%. If your estate is worth less than your allowances, there is usually nothing to pay. Whether that applies to you depends on what you own and who you leave it to, which is what our inheritance tax planning advice is designed to work out.
Example one: a single person
Take an estate of £800,000, made up of a £450,000 home left to children and £350,000 in savings and investments, with no surviving spouse.
- Nil-rate band: £325,000
- Residence nil-rate band: £175,000
- Total allowances: £500,000
- Taxable estate: £300,000
- Inheritance tax at 40%: £120,000
Example two: a married couple
Now take the same £800,000, owned by a married couple. On the first death, everything passes to the surviving spouse. Transfers between spouses and civil partners are exempt, so the bill is nil, and the unused allowances transfer across.
On the second death, the survivor has their own £325,000 plus the transferred £325,000, and two residence nil-rate bands of £175,000 each. That is £1 million of allowances against an £800,000 estate, so again there is no inheritance tax to pay. Same assets, completely different outcome, purely because of who owns what and who inherits.
What counts as part of your estate
- Your home and any other property
- Savings, investments and ISAs
- Cars, valuables and personal possessions
- Proceeds of life insurance policies not written in trust
- Certain gifts made in the seven years before death
Two of those catch people out. ISAs are tax free while you are alive, but they are not exempt from inheritance tax. And a life policy left outside trust is added to your estate, when writing it in trust would have kept it outside and given your family the cash to settle the bill. Our protection planning service covers how that is arranged.
Where the residence nil-rate band disappears
The extra £175,000 only applies when a home passes to direct descendants: children, stepchildren, adopted children or grandchildren. Leave the property to a sibling, a niece or a friend and it does not apply.
It also tapers away on larger estates. For every £2 your estate exceeds £2 million, you lose £1 of the residence nil-rate band, so by roughly £2.35 million it has gone entirely. This is why estates just over £2 million can face a surprisingly sharp jump in tax.
Gifts and the seven year rule
Gifts you make in your lifetime usually fall out of your estate if you survive seven years. Die within that window and the gift is added back into the calculation. Taper relief can reduce the tax due on the gift, though it is widely misunderstood: it reduces the tax on the gift, not the value of the gift, and it only applies after three years.
| Years between gift and death | Inheritance tax due on the gift |
|---|---|
| Less than 3 years | 40% |
| 3 to 4 years | 32% |
| 4 to 5 years | 24% |
| 5 to 6 years | 16% |
| 6 to 7 years | 8% |
| 7 years or more | No inheritance tax on the gift |
Taper relief only applies where the gift itself exceeds the nil-rate band, which is why many people who expect it find it does not help them.
What brings the bill down
- Spouse or civil partner exemption. Anything you leave to them passes free of inheritance tax, and their unused allowance transfers to you.
- Gifting. Most gifts fall out of your estate after seven years, and there are annual exemptions plus an often missed exemption for regular gifts out of surplus income.
- Charitable giving. Gifts to charity are exempt, and leaving 10% or more of your net estate to charity cuts the rate on the rest from 40% to 36%.
- Trusts. Assets placed in trust can pass outside your estate and stay protected for the next generation. See our trusts and IHT planning service.
- Business Relief. Qualifying business assets and certain investments can attract relief.
- Life cover in trust. This does not reduce the bill, but it funds it, so your family are not forced to sell assets in a hurry.
Who pays the bill, and when
This is the part most guides skip. Inheritance tax is normally due six months after the end of the month of death, and the estate usually cannot be distributed until it is settled. Your executors are responsible for reporting and paying it.
That creates a practical problem. The money to pay the tax is often locked inside the estate that cannot be released until the tax is paid. Tax on property can be paid in instalments over ten years, but interest applies. It is why liquidity, whether cash or a life policy in trust, matters as much as the planning itself.
Why more families are being caught
The allowances are frozen until April 2031. Your assets are not. As property and investments rise in value, more estates drift over a static threshold, which is why receipts keep breaking records. HMRC collected around £7.6 billion in the eleven months to February 2025, well ahead of the same period a year earlier.
Pensions join the calculation in 2027
From 6 April 2027, most unused pension funds will count as part of your estate for inheritance tax. For years pensions sat outside the net, so the old habit of spending other savings first and preserving the pension no longer holds automatically. Where death occurs after age 75, beneficiaries can face income tax on withdrawals as well, so the combined effect can be substantial.
If you have a pension, it now belongs in your estate planning. We explain the detail in Are Pensions Subject to Inheritance Tax from 2027? and the income sequencing question in Pension Drawdown vs Annuity.
The bottom line
How much inheritance tax you pay depends on what you own, who you leave it to, and how early you plan. The arithmetic is simple. The decisions around it are not, and most of the effective options, particularly gifting and trusts, need years to work.
Inheritance tax FAQs
Do I pay inheritance tax on money I inherit?
Normally no. Inheritance tax is paid by the estate before anything is distributed, not by you as the beneficiary. You may pay other taxes later, such as income tax on interest earned, or capital gains tax if you sell an inherited asset that has risen in value.
How much can I inherit tax free?
There is no limit on what you can receive tax free as a beneficiary. The question is whether the estate exceeds its allowances: generally £325,000, up to £500,000 where a home passes to direct descendants, and up to £1 million for a married couple.
Does the 40% apply to my whole estate?
No. It applies only to the value above your allowances. An £800,000 estate with £500,000 of allowances is taxed on £300,000, not on the full £800,000.
Can I avoid inheritance tax by giving everything away?
Only if you survive seven years, and only if you genuinely give up the benefit of what you gave. Continuing to live in a house you have gifted is treated as a gift with reservation of benefit and stays in your estate.
When does inheritance tax have to be paid?
Normally within six months of the end of the month of death. Tax on property can be spread over ten annual instalments, though interest is charged.
Find out where you stand
A forecast of your likely bill is usually the moment this stops feeling abstract. Start with our inheritance tax calculator for an instant estimate, then talk to us. We use cashflow modelling to project what your estate would owe today and in future, and set out the options worth acting on. Our inheritance tax planning advice in Liverpool page explains how we work, and your first consultation is free and without obligation.
Information correct as at July 2026 and based on the rules for the 2026/27 tax year. Tax rules, allowances and thresholds can change, and the value of any tax relief depends on your individual circumstances. The Financial Conduct Authority does not regulate some forms of estate planning, trusts or tax advice. The value of investments can fall as well as rise and you may get back less than you invested. This article is general information only and does not constitute personal advice. You should seek advice specific to your circumstances before acting.
