Inheritance tax of 40% is paid on what you leave to your heirs. Use our inheritance tax calculator, plus find out inheritance tax rates, and how it works

Gifts and other ways to avoid IHT

Some gifts are usually tax-free. These include gifts between spouses and civil partners, and gifts to charities.

Other gifts are potentially tax-free (known as potentially exempt transfers or PETs) depending on when they were made. Generally, as long as a gift is made more than seven years before your death to an individual – not to a business or a trust – you won’t pay tax on it.

If you do die within these seven years, the tax payable on the gift may be reduced, depending on when the gift was made. You can find out more in our guide to tax-free gifts.

There are other ways to avoid inheritance tax, too – including putting your life insurance policy under trust or having a deed of variation in your will.

Trusts can also be a useful way to manage your IHT bill, and keep an element of control over what happens to your assets when you pass away. Find out more in our guide to trusts and IHT.

There are also other options like equity release and insurance policies: we explain in our guide to avoiding inheritance tax.

Who pays the IHT bill?

Inheritance tax due on money or possessions passed on when you die is usually paid from your estate.

Your estate is made up of everything you own, minus debts, such as your mortgage, and expenses such as funeral expenses.

Heirs must pay IHT by the end of the sixth month after you die. An inheritance tax reference number from HMRC is needed first, and should be applied for at least three weeks before a payment needs to be made.

However, if the tax is due on gifts you made during the last seven years before your death, the people who received the gifts must pay the tax in most circumstances.

If they can’t or will not pay, the amount due then comes out of your estate.

To find out more about the legal process of dealing with the estate of someone who has died, check out our probate guides.

Do you need to report the estate?

In certain circumstances, you won’t need to report the value of the deceased’s estate, as it will be counted as an ‘excepted estate’.

According to government guidance, most estates are ‘excepted’. However, the rules on this will depend on when they died, who they left their assets to, and whether any inheritance tax is due.

If the person died on or before 31 December 2021

An estate will usually be excepted if:

  • its value is below the inheritance tax threshold at the time the person died
  • the deceased left everything in their estate to a surviving spouse or civil partner who lives in the UK, or to a qualifying registered UK charity and the estate is worth less than £1m
  • the deceased had permanently been living outside of the UK when they died, and their UK assets have a value of less than £150,000.

If the person died on or after 1 January 2022

An estate will usually be excepted if:

  • its value is below the current inheritance tax threshold
  • the estate is worth £650,000 or less and any unused threshold is being transferred from a spouse or civil partner who died first
  • the deceased left everything in their estate to their surviving spouse or civil partner who lives in the UK, or to a qualifying registered UK charity and the estate is worth less than £3m
  • the deceased had permanently been living outside of the UK when they died, and their UK assets have a value of less than £150,000.

If an estate is counted as being excepted, you won’t have to give full details of its value, providing it meets these three criteria:

  • it counts as an excepted estate
  • there’s no inheritance tax to pay
  • no other reasons apply that would mean you have to send full details of the estate, even when no tax is due. More on this below.

Instances where you need to send full details of the estate, even if no inheritance tax is due, include:

  • if the deceased gave away more than £250,000 in the seven years before they died (or more than £150,000 if they died on or before 31 December 2021)
  • if they had foreign assets worth more than £100,000
  • if they gave gifts that they continued to benefit from in the seven years before they died.

You can see the full list on gov.uk.

You will still need to report the value of the estate if you’re applying for probate – even if it’s excepted.