Skip to content

Inheritance Tax in England and Wales: Thresholds, Rates and What You Owe

Most estates don't pay inheritance tax. Many estates still have to fill in the forms.

The UK inheritance tax (IHT) threshold is £325,000, called the nil-rate band. If an estate is under that, no tax is owed. If it's over, the excess is taxed at 40%. [source: gov-uk/inheritance-tax-2026-04-29.html]

But there are exemptions, allowances, and rules that make the calculation more complex than it sounds. The confusing part isn't the maths; it's that you usually need to file the IHT paperwork before you can apply for probate, and you may need to pay some of the tax before the grant is issued.

This guide walks through how much tax (if any) is owed, when it is due, and how the executor or administrator handles the catch-22 of paying tax before probate is granted.

If you can only do one thing today: Add up the entire estate value: house, savings, investments, life insurance, pensions, the lot. If it's under £325,000, or under £500,000 where a main residence passes to direct descendants, you probably owe no IHT. If it's over, expect to file IHT400 and tell whoever is handling probate immediately. [source: gov-uk/inheritance-tax-2026-04-29.html]

The basic rule

The headline rule is straightforward. [source: gov-uk/inheritance-tax-2026-04-29.html]

  • Estate under £325,000: IHT due is £0.
  • Estate over £325,000: IHT is 40% of the amount over £325,000. [source: gov-uk/inheritance-tax-2026-04-29.html]

A worked example. If the estate totals £400,000, the amount over the threshold is £75,000, and IHT at 40% is £30,000. If the estate totals £1,000,000, the amount over the threshold is £675,000, and IHT at 40% is £270,000. [source: gov-uk/inheritance-tax-2026-04-29.html]

The complications come from three things: what counts as "the estate"; what exemptions reduce it; and what allowances increase the threshold.

What counts as the estate

For IHT purposes, the estate includes [source: gov-uk/iht-400-2026-04-29.html]:

  • House and land at current market value, not what was paid for it
  • Bank accounts and savings
  • Investments: stocks, bonds, unit trusts, ISAs, premium bonds
  • Life insurance payable to the estate (policies in trust are different, see below)
  • Business interests, even minority holdings
  • Cars, jewellery, art valued for probate purposes
  • Pension death benefits only if payable to the estate
  • Gifts made in the last 7 years (with some exceptions, see "taper relief") [source: gov-uk/inheritance-tax-2026-04-29.html]

What does not count:

  • Life insurance held in trust (the beneficiary receives it, the estate does not)
  • Pensions with designated beneficiaries (most modern pensions)
  • Property held as joint tenants with survivorship rights
  • Money already held in a formal trust
  • Gifts to a spouse or civil partner (always exempt)

The residence nil-rate band

If the deceased owned a home and it passes to "direct descendants" (children, stepchildren, adopted children, grandchildren if their parent has died first), there's an additional residence nil-rate band of £175,000. [source: gov-uk/iht-residence-nil-rate-band-2026-04-29.html]

Combined with the standard £325,000, that's a £500,000 threshold for an individual leaving a home to direct descendants. For a couple, where the first spouse left their unused allowance to the survivor, the combined threshold can reach £1,000,000. [source: gov-uk/inheritance-tax-2026-04-29.html]

The residence allowance has conditions. It is reduced if the estate exceeds £2 million (it tapers down). It is lost if the home passes outside direct descendants. The rules around downsizing and care-home moves are detailed and worth checking line by line. [source: gov-uk/iht-residence-nil-rate-band-2026-04-29.html]

The spouse exemption

Any amount left to a spouse or civil partner is exempt from IHT. There is no upper limit.

So an estate of £1,000,000 left entirely to a surviving spouse pays no IHT. An estate of £800,000 split £500,000 to spouse and £300,000 to children has only £300,000 to test against the threshold, which is below £325,000, so still no IHT. [source: gov-uk/inheritance-tax-2026-04-29.html]

When the second spouse dies later, their nil-rate band can be increased by any unused portion of the first spouse's allowance. This is the "transferable nil-rate band." A couple where the first spouse left everything to the survivor can effectively combine both allowances on the second death. [source: gov-uk/inheritance-tax-2026-04-29.html]

A worked example. The first spouse dies leaving an estate of £200,000, all to the surviving spouse. No IHT is due (spouse exemption), and £125,000 of the first spouse's £325,000 nil-rate band is unused. The second spouse dies ten years later with an estate of £400,000 going to the children. Their threshold becomes £325,000 plus the transferred £125,000, making £450,000. The estate is below the combined threshold, so no IHT is due. Without the transfer, £75,000 would have been over the £325,000 threshold and £30,000 would have been due at 40%. The transfer is claimed on the second death by the executor, using the IHT supplementary forms within two years of the death. [source: gov-uk/inheritance-tax-2026-04-29.html]

Gifts made before death

Gifts made in the 7 years before death may be added back into the estate for IHT. These are called Potentially Exempt Transfers, or PETs. If the person survives 7 years from the date of the gift, it's fully exempt. If they don't, it counts as part of the estate. [source: gov-uk/inheritance-tax-2026-04-29.html]

There is a tapering relief for gifts made between 3 and 7 years before death, which gradually reduces the tax payable on the gift itself. The standard taper rates are [source: gov-uk/inheritance-tax-2026-04-29.html]:

  • 3 to 4 years before death: 32% (instead of 40%)
  • 4 to 5 years: 24%
  • 5 to 6 years: 16%
  • 6 to 7 years: 8%
  • 7 years or more: 0% (fully exempt) [source: gov-uk/inheritance-tax-2026-04-29.html]

The taper applies only to gifts that, on their own, exceed the nil-rate band. For most modest gifts it makes no practical difference, because the gift falls within the threshold and pays no tax either way.

A worked example. The deceased gave £100,000 to a child five years before dying. Their estate at death is £400,000. The gift is added back into the calculation, making £500,000 in total. The amount over the £325,000 threshold is £175,000. The £100,000 gift, made five years before death, attracts 16% taper (£16,000). The remaining £75,000 of the over-threshold amount is taxed at 40% (£30,000). Total IHT: £46,000. Without taper relief on the gift, the same calculation would have come to £70,000. [source: gov-uk/inheritance-tax-2026-04-29.html]

Other gift rules worth knowing [source: gov-uk/inheritance-tax-2026-04-29.html]:

  • Gifts to a spouse or civil partner are always exempt, in any amount.
  • Gifts to UK charities are exempt.
  • An "annual exemption" of £3,000 per tax year doesn't count as a PET at all. Unused allowance from the previous tax year can be carried forward one year.
  • Small gifts of up to £250 to any one person in a tax year are exempt.
  • Regular gifts out of surplus income (showing a pattern of giving from income, not capital) can be exempt under the "normal expenditure out of income" rule. [source: gov-uk/inheritance-tax-2026-04-29.html]

PETs and taper relief are an area where a probate solicitor's input pays for itself if the deceased made significant gifts in their last decade.

The charitable rate

If 10% or more of the net estate is left to charity, the IHT rate on the remainder drops from 40% to 36%. This sometimes makes a will that leaves a charitable legacy cheaper, in net terms, than one that leaves nothing to charity. A solicitor can model the comparison. [source: gov-uk/inheritance-tax-2026-04-29.html]

A worked example. An estate of £500,000 leaves £50,000 to a registered charity, with the remainder going to children. The charitable gift is exempt. The amount over the £325,000 threshold is £175,000, less the £50,000 charity gift, leaving £125,000 to be taxed. Because the charitable gift hits the 10% mark, the rate is 36% rather than 40%, giving an IHT bill of £45,000 instead of the £50,000 that would otherwise apply. [source: gov-uk/inheritance-tax-2026-04-29.html]

Excepted estates: when full IHT forms aren't needed

Some estates are simple enough that they don't need a full IHT400. These are excepted estates. The rules are detailed, but in broad terms they cover estates that are below the nil-rate band, have no significant gifts in the last 7 years, no foreign assets, and no trusts. [source: gov-uk/inheritance-tax-2026-04-29.html]

For excepted estates, the executor declares the estate value as part of the probate application and no separate IHT400 is required.

Most estates that don't owe tax are not excepted (a single seven-year-old gift, or a small foreign holding, is enough to take an estate out of the excepted category). The excepted-estate route is narrower than it sounds.

The chicken-and-egg: paying IHT before probate

Here is the catch-22 that surprises every executor.

To get probate, you need to file the IHT return and tell HMRC what's owed. But the money to pay the tax is often locked in the estate, in a bank account or tied up in a property. The executor cannot access that money until probate is granted, and probate isn't granted until the tax is paid.

There are several workarounds, depending on the estate's shape:

  1. Pay from personal savings up front. If the executor has the funds, they can pay HMRC directly and reclaim the cost from the estate after probate. This is the fastest route when the bill is modest.
  2. Direct Payment Scheme. Most major UK banks and building societies will release funds from the deceased's account directly to HMRC under this scheme, before probate is granted. The executor signs an IHT423 instructing the bank to pay HMRC; this is the most common route for executors without the cash to pay up front. [source: gov-uk/iht-400-2026-04-29.html]
  3. Instalments on property. Where the bill relates to property, a 10-year annual instalment plan is available for that portion of the IHT. The first instalment is still due 6 months after the end of the month of death. [source: gov-uk/iht-400-2026-04-29.html]
  4. Bank-issued undertaking. Less commonly, a bank may release funds against a written undertaking that the executor will settle the IHT once probate is granted. This depends on the institution and the size of the estate.

In practice the order is: complete IHT400, send it to HMRC, arrange the direct payment from the bank using IHT423, then submit the probate application referencing the IHT400 receipt.

Payment timing

IHT is due 6 months after the end of the month in which the person died. Interest accrues on unpaid IHT after that date. If probate is taking longer than 6 months, the interest still applies. [source: gov-uk/iht-400-2026-04-29.html]

For property, the 10-year instalment option lets you pay IHT on the qualifying property in equal annual instalments. Selling the property before the 10 years are up triggers the remaining balance immediately. [source: gov-uk/iht-400-2026-04-29.html]

Debts and funeral costs

The executor can deduct legitimate debts and funeral expenses from the estate before calculating IHT. That includes the outstanding mortgage on a property in the estate, personal loans, reasonable funeral costs, and the costs of administering the estate. [source: gov-uk/iht-400-2026-04-29.html]

A worked example. An estate of £400,000 (£300,000 house, £100,000 savings) with an £80,000 outstanding mortgage and £5,000 of funeral costs has a net taxable value of £315,000, under the threshold, so no IHT is due. The same estate ignoring deductions would show a £30,000 tax bill. Always tell whoever is preparing the IHT return about debts, mortgages, and administration costs. [source: gov-uk/iht-400-2026-04-29.html]

Business and agricultural property relief

If the deceased owned a trading business or agricultural land, specific reliefs can reduce the taxable value substantially, in some cases to zero. These are technical reliefs with strict eligibility rules; minority shareholdings, tenancy structures, and the length of ownership all matter. If they apply, instruct a probate solicitor with tax experience. [source: gov-uk/iht-400-2026-04-29.html]

The forms

Where the estate is not excepted, you will file [source: gov-uk/iht-400-2026-04-29.html]:

  • IHT400: the main return
  • IHT402: claim to transfer unused nil-rate band from a deceased spouse or civil partner
  • IHT404: jointly-owned assets
  • IHT405: houses, land, buildings, and interests in land
  • IHT407: household and personal goods
  • IHT409: pensions
  • IHT411 and IHT412: stocks, shares, and unlisted holdings
  • IHT423: bank's instruction to pay IHT from the deceased's account
  • IHT436: claim to transfer unused residence nil-rate band

Most estates only need a subset. Your solicitor or the probate guidance indicates which apply. HMRC issues a receipt and, after a clearance period, a clearance certificate. The clearance is what confirms the IHT side of probate is complete. [source: gov-uk/iht-400-2026-04-29.html]

What this guide doesn't cover

This page is for England and Wales only. Inheritance Tax rates and thresholds are the same across the UK, but Scottish prior rights and legal rights affect which assets reach the IHT calculation, and the probate process there is different (it's called confirmation). A separate Scottish guide is planned.

If you're struggling, you don't have to do this alone. Samaritans (116 123, 24/7) | Cruse Bereavement Care (0808 808 1677) | Mind (0300 123 3393)

Next: How to Apply for Probate

Last verified: 29 April 2026 against gov.uk/inheritance-tax.