Who pays inheritance tax?
The estate pays. The executor named in the will, or the administrator if there is no will, works out whether tax is due, reports to HM Revenue and Customs (HMRC) and pays it from the estate before sharing out what is left. People who inherit do not normally pay inheritance tax on what they receive, although they may pay other taxes later, such as income tax on rent from an inherited house (GOV.UK: how inheritance tax works).
The exception is lifetime gifts. If someone gave away more than £325,000 in the seven years before they died, the people who received the later gifts can be asked to pay tax on them. Our guide to gifts and the seven-year rule explains the order in which gifts use the allowance.
Inheritance tax is a UK-wide tax. The will-writing rules on this site are for England and Wales only; Scotland and Northern Ireland have different will and succession law.
What are the inheritance tax allowances?
There are two main allowances, and a surviving spouse or civil partner can add whatever their late partner did not use. The nil-rate band has been £325,000 since 6 April 2009 and the residence nil-rate band £175,000 since 6 April 2020. Finance Act 2026 extended the freeze on both, and on the £2 million taper threshold, to 5 April 2031 (Finance Act 2021, section 86, as amended; HMRC thresholds table).
| Allowance | Amount | Who gets it |
|---|---|---|
| Nil-rate band | £325,000 | Everyone. Gifts made in the seven years before death use it first. |
| Residence nil-rate band | Up to £175,000 | Estates where a home, or a share of one, passes to direct descendants. Capped at the value of that home and reduced by £1 for every £2 the estate is worth over £2 million. |
| Unused nil-rate band of a late spouse or civil partner | Up to £325,000 | The survivor’s estate, if the executors claim it. |
| Unused residence nil-rate band of a late spouse or civil partner | Up to £175,000 | The survivor’s estate, if a home passes to direct descendants and the executors claim it. |
The residence nil-rate band has its own conditions about the home, the family members who count and the wording of the will. Read the residence nil-rate band explained before relying on it.
What are the inheritance tax rates?
The standard rate is 40%, charged only on the value above the available allowances. GOV.UK’s own example: an estate worth £500,000 with a £325,000 threshold pays 40% of £175,000, which is £70,000.
- 36% applies instead if at least 10% of the estate’s “baseline amount” is left to charity. See leaving money to charity in a will.
- 20% is charged during your lifetime on transfers into most trusts above your available nil-rate band, with a top-up towards the full 40% if you die within seven years (GOV.UK: trusts and inheritance tax).
- 32% down to 8% is the effective rate on gifts made three to seven years before death that exceed the nil-rate band, because taper relief reduces the tax on them.
What is exempt from inheritance tax?
Some gifts and inheritances are exempt whatever their size. The main ones are:
- Your spouse or civil partner. Unlimited, except that the exemption is capped at £325,000 if you are a long-term UK resident and your spouse or civil partner is not (Inheritance Tax Act 1984, section 18).
- Charities and community amateur sports clubs, plus qualifying political parties and some national bodies.
- Small and regular lifetime gifts such as the £3,000 annual exemption, £250 small gifts, wedding gifts and regular gifts from surplus income.
Unmarried partners are treated like anyone else: no exemption and no transfer of unused allowances. If you live together without marrying, read wills for unmarried couples and consider advice if your combined assets are large.
How can a couple pass on up to £1 million?
By stacking both partners’ allowances on the second death. If the first spouse or civil partner leaves everything to the survivor, the gift is exempt and none of their allowances is used. On the survivor’s death, their executors can claim the unused percentage of both bands: £325,000 × 2 plus £175,000 × 2 is £1 million.
Every part of that has a condition. The full £350,000 of residence allowance needs a home worth at least that much passing to direct descendants, the estate must be worth no more than £2 million to avoid the taper, and the claims must be made. Worked cases are in transferring nil-rate bands between spouses.
Example: a widow dies leaving £900,000, including a £400,000 home, to her children. Her late husband left everything to her, so both of his bands are unused. Her estate can claim £650,000 of nil-rate band and £350,000 of residence nil-rate band, £1 million in total, so there is no inheritance tax to pay.
What counts as part of the estate?
Everything the person owned at death, less debts, plus some things they did not own outright. HMRC’s valuation guide lists the home and other property, bank accounts and ISAs, investments, household items, vehicles, foreign assets, cryptoassets, money owed to them and payments on death such as life insurance paid to the estate (GOV.UK: estimate the estate’s value). It also includes:
- their share of jointly owned property, even when it passes automatically to the other owner;
- gifts made in the seven years before death, above the exemptions;
- anything given away that they kept benefiting from, such as a home they gave away but still lived in rent-free;
- trust assets in which they had certain interests.
Most unused pension pots are outside the estate for deaths before 6 April 2027. For deaths on or after that date, Finance Act 2026 brings most unused pension funds and death benefits into the estate. See pensions and inheritance tax.
Since 6 April 2025 the reach of the tax depends on residence rather than domicile. Someone who has lived in the UK for at least 10 of the last 20 years is taxed on their worldwide assets; others pay only on UK assets (GOV.UK: if you die when you are based outside the UK).
What changed for farms and businesses on 6 April 2026?
Agricultural property relief and business property relief no longer give unlimited 100% relief. From 6 April 2026, 100% relief applies to the first £2.5 million of combined qualifying agricultural and business property, with 50% relief above that. Any unused part of the £2.5 million allowance can pass to a surviving spouse or civil partner, and shares designated “not listed” on a recognised stock exchange, such as AIM shares, get 50% relief (HMRC policy paper, updated 3 March 2026; Finance Act 2026, Schedule 12). Tax on relievable property can now be paid in 10 yearly instalments without interest if paid on time. Anyone with a farm, a business or unlisted shares needs individual advice; an online will is not the right tool.
When is inheritance tax due and how is it paid?
- Value the estate. The executor lists assets, debts and gifts. HMRC’s online checker helps decide whether tax is likely.
- Check whether full details are needed. If tax is due, or the estate is not an “excepted estate”, send form IHT400 within 12 months of the death and before applying for probate (GOV.UK: value an estate and report it).
- Get a payment reference at least 3 weeks before paying.
- Pay by the end of the sixth month after the death. A death in January means payment by 31 July. Interest runs after that date. HMRC’s published late-payment rate for inheritance tax has been 7.75% a year since 9 January 2026 (HMRC interest rates).
- Apply for probate. HMRC usually sends a code within 20 working days of receiving the IHT400 or payment, whichever is later, and that code is needed for the probate application.
Tax on land, buildings and some shares can be paid in yearly instalments over 10 years, and banks can pay directly from the deceased’s accounts (GOV.UK: pay your inheritance tax bill). For the wider process, see what probate is and the executor checklist.
Which estates do not need to send full details?
Most estates are “excepted estates”: no inheritance tax is due and HMRC does not need a full account. For deaths from 1 January 2022, the value is reported in the probate application instead, and old form IHT205 applies only to deaths up to 31 December 2021 (GOV.UK: form IHT205). An estate is usually excepted if:
- its value is below the £325,000 threshold;
- it is worth £650,000 or less and a late spouse’s or civil partner’s unused threshold is being transferred;
- everything goes to a UK-resident spouse or civil partner or a qualifying charity and the estate is worth less than £3 million;
- the person lived permanently abroad and their UK assets are worth £150,000 or less.
Full details on form IHT400 are still needed if, among other things, the person gave away more than £250,000 in the seven years before death, kept benefiting from a gift, left more than £3 million, or had foreign assets worth more than £100,000. GOV.UK’s excepted-estate list does not mention the residence nil-rate band, so an estate that relies on it to avoid tax should expect to send form IHT400 with form IHT435.
What can a will change about inheritance tax?
A will decides who inherits, and the tax follows from that. It can:
- leave assets to a spouse or civil partner, which is exempt and keeps allowances available for the second death;
- leave a home to children or grandchildren, which is needed for the residence nil-rate band;
- leave gifts to charity, which are exempt and can bring the rate down to 36%;
- say who bears the tax. By default, tax on UK assets passing under the will is paid out of the residue, so cash gifts arrive in full and the residuary beneficiaries bear the bill (Inheritance Tax Act 1984, section 211).
A will cannot:
- undo lifetime gifts or reservations of benefit;
- take jointly owned property, life cover in trust or pension death benefits out of the tax calculation;
- give an unmarried partner the spouse exemption;
- make up for a missed claim. Transfers of unused allowances have to be claimed by the executors.
After a death, the people who inherit can redirect their inheritance by a deed of variation made within two years. If the deed includes the statement the law requires, it is treated for inheritance tax as if the deceased had made the change (Inheritance Tax Act 1984, section 142).
When should you get advice?
Inheritance tax planning needs individual advice from a solicitor or tax adviser. That includes trusts in a will, business or agricultural property, lifetime gifting strategies, giving away a home, estates near or above £2 million, foreign assets or residence history, and large pension funds. HMRC’s helpline explains the rules but cannot advise on paying less tax.
SwiftWill’s automated will does not do tax planning. It records who inherits your estate and who your executors are, for straightforward England and Wales estates. It does not check whether tax will be due and does not draft tax-planning trusts. If your estate is likely to exceed your allowances and you want to plan around the tax, our suitability check will direct you to a solicitor. Read do I need a solicitor for a will? for the full list.
Where can you read more?
- Residence nil-rate band explained: homes, descendants, taper and downsizing.
- Gifts and the seven-year rule: exemptions, taper relief and gifts with reservation.
- Pensions and inheritance tax: the change for deaths from 6 April 2027.
- Transferring nil-rate bands between spouses: the claims and the “£1 million” conditions.
- Inheritance tax calculator: estimate the tax on an estate.
Sources
- GOV.UK: how inheritance tax works
- HMRC: inheritance tax thresholds and interest rates (updated 6 April 2026)
- Finance Act 2021, section 86, as amended by Finance Act 2026, section 72
- Inheritance Tax Act 1984, section 18 (spouses and civil partners)
- Inheritance Tax Act 1984, section 142 (variations)
- Inheritance Tax Act 1984, section 211 (burden of tax)
- GOV.UK: how to value an estate and report its value
- GOV.UK: pay your inheritance tax bill
- HMRC: late payment and repayment interest rates
- HMRC: agricultural property relief and business property relief changes
- HMRC: summary of reforms to agricultural and business property relief (AIM shares)
- Finance Act 2026 (Royal Assent 18 March 2026)
- GOV.UK: form IHT205, deaths up to 31 December 2021
- GOV.UK: if you die when you are based outside the UK
- GOV.UK: trusts and inheritance tax
Sources checked 24 September 2026.