Your estate may need to pay inheritance tax when you die before the gifts in your will can be distributed. This is a matter that worries some people, and they are anxious to avoid paying more tax than is necessary.
Less than 10% of estates will have any inheritance tax to pay at all. This is because many estates will either be within the Nil rate band (tax-free allowance) or will give part or all of the estate to people who are exempt from inheritance tax.
The Inheritance tax rate is currently 40% for anything over the nil rate band. However, there are a number of things that can affect this rate. For example, if you leave 10% of your estate to charity the rate is reduced to 36%. You can find more information on what can affect inheritance tax on our How does inheritance tax work? page.
The most common is the Spouse exemption, but it is also possible to Donate to a charity in your will to make use of charity tax exemptions, or to make use of Other inheritance tax exemptions: political parties, housing associations, national purposes and heritage maintenance funds.
There are also some types of property that are either considered exempt from inheritance tax or are taxed at a reduced rate. As explained by our Inheritance tax relief page, the main categories of inheritance tax relief are agricultural property, business property, and exemptions for armed forces and emergency services personnel.
Remember that inheritance tax may be due on any gifts caught by the Seven-year rule – gifts made in the last seven years. Not all gifts will be counted as lifetime gifts, so you should consult our What is a lifetime gift? page if you are concerned you have made gifts that may be included. In addition, some lifetime gifts are exempt from inheritance tax either completely or partially, as explained in our Lifetime gift: tax exemption page.
Whether you need to pay inheritance tax depends on your domicile status and the size of your estate
Work out the likely Inheritance tax bill from the value of the ‘chargeable estate’
The current inheritance tax rate is 40% above the tax free allowance, but can be reduced by a number of factors
Inheritance tax is not payable on any assets that you leave to your spouse or civil partner in your will
The nil rate band is the amount of your estate that is free from inheritance tax, and it can benefit a number of different people
Making a gift during your lifetime rather than through your will may still be liable for inheritance tax
Lifetime gifts can either be inheritance tax exempt, potentially exempt, or chargeable
Inheritance tax may be due on gifts you make in the years before your death
Donate to charity and take advantage of the charity exemption and the a possible reduction in tax on the rest of your estate
Other inheritance tax exemptions can either reduce the rate of inheritance tax or exempt gifts from liability entirely
Inheritance tax relief is available to reduce or remove tax liability for agricultural and business property