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.
Try the calculator: Use our free calculator to see how inheritance tax (iht) affects your finances.
Inheritance Tax Calculator →Other Glossary Terms
The system HMRC uses to collect income tax and National Insurance directly from employee 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.
Frequently Asked Questions
What does inheritance tax (iht) mean?
A tax charged at 40% on the value of an estate above the nil rate band when someone dies.
Why does inheritance tax (iht) matter?
Understanding inheritance tax (iht) helps you make informed financial decisions and ensure you pay the correct amount of tax. Getting it wrong could mean overpaying or underpaying HMRC, which may result in penalties or missed savings. Use our calculators to see how inheritance tax (iht) applies to your personal situation.
Where can I find more information about inheritance tax (iht)?
HMRC publishes official guidance on GOV.UK for all UK tax topics. For a quick overview, our glossary entries are written in plain English and updated each tax year. You can also use our free online calculators to model different scenarios and understand how changes to your income, deductions, or allowances affect your overall tax position.