Glossary · UK
What is Inheritance Tax (IHT)?
A 40% tax on the part of an estate above the nil-rate band (£325,000) when someone dies, reduced to 36% if 10% or more of the estate is left to charity.
Full Definition
Inheritance Tax (IHT) is charged on the value of a person's estate -- money, property and possessions -- above certain tax-free thresholds when they die, and in limited circumstances on some lifetime gifts. Every individual has a nil-rate band of £325,000, frozen until April 2030, below which no IHT is due. An additional residence nil-rate band of up to £175,000 is available where a main residence is left to direct descendants (children, grandchildren), giving a combined threshold of up to £500,000 for a single person, though the residence nil-rate band tapers away for estates worth more than £2,000,000. Any unused nil-rate band and residence nil-rate band can be transferred to a surviving spouse or civil partner, potentially giving a couple a combined threshold of up to £1,000,000. The standard rate above the available threshold is 40%, reduced to 36% if at least 10% of the net estate is left to charity. Transfers between UK-domiciled spouses or civil partners are exempt from IHT regardless of amount, and most gifts made more than seven years before death fall outside the estate under the seven-year rule.