How inheritance tax works in United Kingdom
Inheritance Tax is charged on the value of a person’s estate on death, and on some lifetime transfers. The standard rate is 40% on the part of the estate above the available threshold.
The nil-rate band is GBP 325,000 and the residence nil-rate band can add up to GBP 175,000 when a qualifying home is left to direct descendants. Unused allowances can usually transfer to a surviving spouse or civil partner.
Lifetime gifts can become taxable if the donor dies within seven years. From 6 April 2025, domicile was replaced by long-term UK residence for IHT purposes, which matters for overseas assets and trusts.
Tax rates at a glance
- Standard inheritance tax
- 40%
- Nil-rate band
- GBP 325,000
- Residence nil-rate band
- GBP 175,000
- Lifetime gifts
- Potentially 0% to 40%
Who benefits most
These profiles tend to benefit most when the rules match their real residence, payroll and business setup.
Estate plannersProperty ownersFamily businessesTrusteesExpats
Watch out for
- The nil-rate band, residence nil-rate band and taper threshold are frozen through 2030/31.
- From Budget 2025, the combined 100% Agricultural Property Relief and Business Property Relief allowance is also frozen at GBP 1 million for 2030/31.
- The UK long-term residence rules now matter more than domicile for many cross-border estates.
Frequently asked questions
What is the UK inheritance tax rate?
The standard rate is 40% on the part of the estate above the available threshold.
How much can I leave tax-free?
The main nil-rate band is GBP 325,000. A further residence nil-rate band of up to GBP 175,000 may apply if a qualifying home passes to direct descendants.
Do gifts avoid inheritance tax?
Not always. Many gifts are potentially exempt transfers and become taxable if the donor dies within seven years. Transfers into most trusts can be immediately chargeable.