Inheritance Tax Explained: Thresholds, Rates, and Who Pays
Inheritance Tax — usually shortened to IHT — is a tax on the estate of someone who has died. The estate is everything they owned: their home, money in the bank, investments, and possessions. It is not a tax on the people who inherit, and it is not charged on every estate. Most estates pay nothing at all, because the tax only starts above a threshold — and the thresholds are high enough that more than 93% of estates are forecast to have no IHT liability in each of the next five years.
In short
Inheritance Tax is charged at 40% on the part of an estate above the £325,000 nil-rate band. There is normally no tax to pay if the estate is worth less than £325,000, or if everything above £325,000 is left to a spouse, civil partner, a charity or a community amateur sports club. Where at least 10% of the net estate is left to charity, the rate falls to 36%. The thresholds are frozen until 5 April 2031.
Who pays it
The tax is paid from the estate itself, by the person dealing with the estate — the executor, if there is a will, or the administrator if there is not. Beneficiaries do not normally pay tax on the things they inherit. The executor values the estate, works out whether any tax is due, pays HMRC, and only then distributes what is left. If tax is due, it usually has to be paid before probate is granted — the paying guide explains the sequence.
The £325,000 threshold
Every person has a tax-free allowance called the nil-rate band: £325,000. An estate worth less than that pays no Inheritance Tax. The band has been fixed at £325,000 since the 2009/10 tax year, and it is frozen at that level until 5 April 2031 under section 72 of the Finance Act 2026, following the Autumn Budget of 26 November 2025. A home left to children or grandchildren can add a further band of up to £175,000 — the residence nil-rate band, explained in its own guide — taking the tax-free total to £500,000 for a single person and £1,000,000 for a couple.
The 40% rate — on the slice above the threshold only
The standard rate is 40%, and it applies only to the part of the estate above the available threshold — never to the whole estate. GOV.UK's own example: an estate worth £500,000 with a £325,000 threshold pays 40% of £175,000, which is £70,000. If the same estate qualified for the full residence nil-rate band as well, the tax-free total would be £500,000 and no tax would be due at all.
The 36% charity rate
The estate can pay tax at a reduced rate of 36% on some assets if 10% or more of the "net value" is left to charity in the will. Net value means the estate's total value minus any debts. The reduced rate applies to the part of the estate that is not left to charity — so leaving a tenth to charity can cut the rate on the rest. The planning guide explains how the charity route works alongside the other exemptions.
What this site covers
The eleven guides on this site walk through the whole subject in plain English: the two thresholds, the 7-year rule for gifts, property and the family home, the April 2027 pension change, trusts, business and agricultural relief, paying the tax and probate, planning and exemptions, couples, and how Inheritance Tax compares with Capital Gains Tax. Every figure comes from GOV.UK or HMRC, and every guide says where to check it.
Sources: GOV.UK, How Inheritance Tax works: thresholds, rules and allowances; GOV.UK, Inheritance Tax nil-rate band and residence nil-rate band thresholds from 6 April 2026 to 5 April 2028; Budget 2026 Annex A: rates and allowances.