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 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.

Can TaxScouts take care of my IHT?

Unfortunately, no – at TaxScouts we only do personal tax returns.

We recommend you mandate a lawyer to “apply for probate”, which basically means that they’ll have the right to deal with your property, money and possessions. For more information about how the probate process works, learn more from the UK Care Guide.

You can also contact HMRC for more advice on probate and Inheritance Tax.