Inheritance Tax (IHT) is the tax paid on someone’s estate after they pass away. In the 2023/24 tax year, the standard IHT rate is 40%, payable for most estates that are larger than £325,000.
What is the IHT tax-free allowance?
Usually, there no Inheritance Tax to pay if either:
The value of your estate is below £325,000
You leave everything above the £325,000 threshold to your spouse, civil partner, or a charity.
This limit is called the IHT Allowance. Also, if you leave your home to a child or grandchild, you get another £175,000 as an extra “main residence” allowance.
What are the IHT tax rates?
The standard Inheritance Tax rate is 40%.
If you leave at least 10% to a charity, this drops to 36%.
In any case, this is charged only on the part of the estate that is above the IHT allowance.
Who will actually pay the IHT?
Your beneficiaries:
Heirs don’t need to do this themselves: the executor will use money from your estate to pay the IHT directly to HMRC.
People you gave gifts to, however, might have to pay IHT themselves – but only if you give away more than £325,000 or pass away within seven years.
Do spouses have to pay IHT?
No:
Married couples and civil partners can give assets to each other completely tax-free.
Also, the surviving partner can use both IHT allowances, often ending up with a double allowance.
What about gifts?
It all depends:
Some gifts are always tax-free: gifts to spouses, civil partners, and charities.
Any gifts made more than seven years before passing away are also tax-free.
Most small gifts: wedding gifts (maximum is £5,000 for a child), any gift up to £250, etc.