What is inheritance tax?
Inheritance tax is a tax on the estate of someone who has died, covering their property, money and possessions. In the UK it is usually 40% on the value above a £325,000 tax-free threshold. A further £175,000 allowance can apply when a home passes to children or grandchildren.
Only a small minority of estates pay inheritance tax, roughly one in twenty deaths. Anything left to a spouse, civil partner or charity is free of the tax. Unused allowances pass to a surviving spouse, so a married couple can pass on up to £1 million tax-free, including the main residence allowance.
The rate falls to 36% if at least 10% of the estate goes to charity. Gifts made more than seven years before death are usually free of tax. Gifts within seven years may be taxed, with a sliding scale after three years. The thresholds are frozen until April 2031. Small gifts are allowed each year too. Everyone can give away £3,000 a year tax-free, plus wedding gifts and regular gifts from surplus income.
Since April 2026, farms and family businesses get full relief only on the first £2.5 million, with 50% relief above that. From April 2027, most unused pension pots will also count towards the estate. These changes mean more families are likely to pay in future. Inheritance tax raises a relatively small share of total tax, but it is one of the most unpopular taxes in polls.
Paid on fewer than 5% of deaths but deeply unpopular. Raises about £9bn.
How it works
- Inheritance tax rate: A flat 40% above the thresholds. Lower rates with fewer reliefs could raise the same money more fairly.
- Nil-rate band: Frozen at £325,000 since 2009 and now to 2030. Couples can pass on £650,000 plus home allowances tax free.
- Residence nil-rate band: Extra allowance when a home goes to direct descendants. It tapers away above £2m and favours homeowners over renters.
- Unused pensions in estate: From April 2027 pensions count towards the estate, ending their use as an inheritance tax shelter.
- Farm and business relief allowance: Full relief on the first £2.5m of farm and business assets from April 2026, 50% above. Farmers protested; wealthy buyers used farmland as a shelter.
- Gifts rule (years before death): Gifts are tax free if you survive this many years. A longer window catches more planned giving.
The left tends to see inheritance tax as a fair way to limit unearned wealth passing down generations and to fund services.
The right tends to see it as a double tax on money already taxed in life, and many want it cut or abolished.
Britain is split. Now you decide.
Adjust inheritance tax thresholds and farm relief in the WeDecide Budget, and see who cheers and who protests.
Play WeDecide freeCommon questions
How much can you inherit before paying tax?
Estates usually pay nothing below £325,000. With the home allowance and a spouse's unused allowances, up to £1 million can pass tax-free.
Who pays inheritance tax?
The executors pay it from the estate before it is shared out, usually within six months of death.
What is the seven year rule?
Gifts made more than seven years before death normally fall outside the estate for inheritance tax.