What are the Inheritance Tax rates and allowances?

Inheritance Tax (IHT) is the tax paid on someone’s estate after they pass away.

In the 2024/25 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.