You may still need to report the estate’s value even if it’s below the threshold.
Quick facts
- Threshold
- £325,000
- With a home to children
- Up to £500,000
- Rate
- 40% above the threshold
- Gift allowance
- £3,000 a year
- Small gifts
- £250 per person
How much
The standard Inheritance Tax rate is 40%. It’s only charged on the part of your estate that’s above the threshold.
Your estate is worth £500,000 and your tax-free threshold is £325,000. The Inheritance Tax charged will be 40% of £175,000 (£500,000 minus £325,000).
The estate can pay Inheritance Tax at a reduced rate of 36% on some assets if you leave 10% or more of the ‘net value’ to charity in your will.
Passing on a home
You can pass a home to your husband, wife or civil partner when you die. There’s no Inheritance Tax to pay if you do this.
If you own your home (or a share in it) your tax-free threshold can increase to £500,000 if:
- you leave it to your children (including adopted, foster or stepchildren) or grandchildren
- your estate is worth less than £2 million
If you’re married or in a civil partnership and your estate is worth less than your threshold, any unused threshold can be added to your partner’s threshold when you die.
Gifts that do not count
You can give away a total of £3,000 worth of gifts each tax year without them being added to the value of your estate. This is known as your ‘annual exemption’.
You can give as many gifts of up to £250 per person as you want each tax year, as long as you have not used another allowance on the same person.
Wedding or civil partnership gifts can be up to £5,000 to a child, £2,500 to a grandchild or great-grandchild, and £1,000 to any other person.
People you give gifts to might have to pay Inheritance Tax, but only if you give away more than £325,000 and die within 7 years.
Who pays
Funds from your estate are used to pay Inheritance Tax to HM Revenue and Customs (HMRC). This is done by the person dealing with the estate (called the ‘executor’, if there’s a will).
Your beneficiaries (the people who inherit your estate) do not normally pay tax on things they inherit.
Common questions
What is the Inheritance Tax threshold?
£325,000. It can rise to £500,000 if you leave your home to your children or grandchildren and your estate is worth less than £2 million.
What is the rate?
40% on the part of the estate above the threshold.
Is there tax on what I leave my spouse?
No. Everything above the threshold left to a spouse or civil partner is normally free of Inheritance Tax.
How much can I give away each year?
£3,000 under the annual exemption, plus gifts of up to £250 per person.