INHERITANCE TAX

TO DO:

-Work out if you need to pay inheritance tax
-Value your loved one’s assets
-Check if a will was left and who the executors are

Probably the most dreaded of all the taxes is inheritance tax (IHT).

The only piece of good news is not everybody has to pay it, but more of that later.

IHT is important to take into consideration when dealing with a loved one’s estate and your own for the future.

IHT includes all property, possessions and money. At the moment it is charged at 40% of their total worth. 

This is charged on the part of the estate that is above the tax-free threshold which is currently (as of May 2025) £325,000. It must be paid within six months of someone dying or you’ll be charged interest. So just as you’re reeling from the deceased’s death a clock begins ticking within the government’s tax authority, HM Revenue & Customs. Insidious yes but we’re going to help you get through it as quickly as possible.



YOU DO NOT PAY TAX IF:

  • The value of the estate is below £325,000

  • Everything above the threshold is left to a spouse or civil partner (this has to be an official partnership)

  • Everything is left to a community club or charity

  • If a home is left to children or grandchildren, the threshold can increase to £500,000.

 As an idea for numbers, if an estate is worth £525,000 and the IHT threshold is £325,000 the tax will be on £200,00  (£525,000 - £325,000). Therefore the tax would come to £80,000 (40% of £200,000) which is a substantial sum of money.

VALUING AN ESTATE

You need to do this before applying for probate (the approval of the will) and in conjunction with it. Find out if a will was left and who the executors are as they will distribute the estate.

To value an estate you need to list all the assets that have been left and deduct any debts or liabilities, such as money in the bank, property, land, jewellery, cars, shares etc.  

The government has an Inheritance Tax Checker that can help you work out if any IHT is due and give you a rough estimate. The page will also tell you what happens to things that were owned jointly. Most commonly this will be relevant to homes; usually properties c0-owned with a spouse are held as joint tenants so automatically any assets, such as land or property, pass on to the other owners if one of them dies. But some things are held as tenants in common so people own shares of a property, so check which is relevant to the deceased.

Valuations of a home need to be accurate so you should get an estate agent or two to value any property to work out what it’s worth.

For high value items there are professionals who will visit the home of the deceased and work out what they are worth eg. valuable antiques, art etc. Just to warn you this can be quite daunting or emotional.

The valuation is then submitted to the court as part of the probate process. 

To be able to pass on an estate to a partner, you must be legally married; the law does not take into account a partnership unless it is legally documented.

GIFTS

You may already know this but currently, you are able to gift £3,000 tax free to anyone in a 12 month period. You can ‘roll over’ any unused annual exemption to the next tax year - but only for one tax year.

More bad news, it’s not just monetary gifts, it includes things like jewellery, antiques and shares. There are some other interesting exemptions (eg. helping pay for family/friends’ weddings!) so check the government page on gifts for more details.

Anything above that £3,000 limit unfortunately could be liable for IHT, depending on when it was given. This is sometimes known as ‘the 7 year rule’. 

It means that any monetary gift given 7 years before the death of the individual is deemed as tax free. So if the person who gives it stays alive for 7 years it won’t be liable for IHT.

If they die before the 7 years are up, the amount to be paid operates on a sliding scale, known as ‘taper relief’. The level of tax to be paid tapers down depending on how long ago the gift was given:

3 to 4 years - 32%

4 to 5 years - 24%

5 to 6 years - 16%

6 to 7 years - 8%

7 or more - 0%

GET SPECIALIST ADVICE IF YOU CAN

We’ve just given you a basic outline of IHT here. If you have to pay inheritance tax, our suggestion (if you can afford it) is to seek official advice from a solicitor or tax advisor as it can be complicated dealing with exemptions and rule changes and time is of the essence in paying IHT or you’ll be charged interest.

 Money Helper has some good info on if you might need a specialist and how much it might cost.

 

Links:

IHT Calculator
Government website on how IHT works
Money Helper

Photo: Tash Rosin