What is Inheritance Tax (IHT)?
A tax charged at 40% on the value of an estate above the nil rate band when someone dies.
Key Facts
- ✓ Standard rate: 40% on estate above threshold
- ✓ Nil rate band: £325,000 (frozen since 2009)
- ✓ Residence nil rate band: £175,000 (for main home to descendants)
- ✓ Married couples can combine allowances: up to £1 million
- ✓ Reduced rate of 36% if 10%+ left to charity
- ✓ Gifts made 7+ years before death are usually exempt
Current Rates (2025/26)
- ▸ Rate: 40% (36% with 10% charity gift)
- ▸ Nil rate band: £325,000
- ▸ Residence nil rate band: £175,000
- ▸ Combined couple threshold: up to £1,000,000
Explanation
Inheritance Tax (IHT) is a tax on the estate (property, money, and possessions) of someone who has died. It is charged at 40% on the value of the estate above the nil rate band of £325,000. If the deceased leaves their home to direct descendants (children or grandchildren), an additional residence nil rate band of £175,000 may apply, giving an effective threshold of £500,000. Married couples and civil partners can transfer any unused nil rate band to the surviving spouse, potentially doubling the threshold to £1 million for a couple. The rate is reduced to 36% if the deceased leaves at least 10% of the taxable estate to charity. Most gifts made more than seven years before death are exempt. IHT is paid by the executor of the estate, usually before probate is granted.
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Inheritance Tax Calculator →Other Glossary Terms
The system HMRC uses to collect income tax and National Insurance directly from employees' wages.
National InsuranceA UK tax on earnings and self-employed profits that funds the state pension, NHS, and benefits.
Personal AllowanceThe amount of income you can earn each year before paying income tax — currently £12,570.
Basic Rate (20%)The 20% income tax rate applied to taxable income between £12,571 and £50,270.
Higher Rate (40%)The 40% income tax rate applied to taxable income between £50,271 and £125,140.
Additional Rate (45%)The 45% income tax rate applied to taxable income above £125,140.