How much inheritance tax will your family actually pay? For most UK families, the honest answer is: nothing. Only about 4% of UK estates pay any IHT at all. For families above the threshold, the rate is 40% on the amount over the allowances — but several reliefs and exemptions can reduce that significantly. This guide gives you a realistic estimate, with worked examples for different estate sizes and family situations.
Key takeaways:
- IHT is charged at 40% on the amount of your estate above the nil-rate band of £325,000 (2026, frozen until 2028).
- The Residence Nil Rate Band adds up to £175,000 more if the family home passes to direct descendants.
- Married couples and civil partners can transfer unused allowances, giving a combined threshold of up to £1,000,000.
- The spouse exemption means anything left to a spouse or civil partner passes IHT-free regardless of value.
- Roughly 96% of UK estates pay zero IHT. The reduction strategies that genuinely move the needle: spouse transfer, charitable gifts, the seven-year rule for lifetime gifts, and pension structuring.
The basic IHT formula
Inheritance tax in England and Wales (and across the UK) works like this:
- Add up everything you own at death — your estate.
- Subtract debts and funeral expenses.
- Apply the nil-rate band (£325,000) — the first £325,000 is IHT-free.
- Apply the residence nil-rate band (up to £175,000) — additional allowance for the family home passing to descendants.
- Apply the spouse exemption — anything passing to a spouse or civil partner is IHT-free.
- Apply any other exemptions and reliefs (charitable bequests, Business Relief, Agricultural Relief).
- The remainder is taxed at 40%.
The arithmetic is:
IHT due = (Estate value − Debts − Allowances − Exemptions) × 40%Worked examples
Example 1: Single person, modest estate
Anna, single, no children. Estate: £200,000 (small flat plus savings). Leaves everything to a charity.
- Estate: £200,000
- Spouse exemption: N/A (no spouse)
- Charitable exemption: £200,000 (everything to charity)
- Taxable estate: £0
- IHT due: £0
Example 2: Single person, larger estate
Brian, single, leaves everything to his nephew. Estate: £500,000 (no home).
- Estate: £500,000
- Nil-rate band: £325,000
- RNRB: N/A (no qualifying residential interest)
- Taxable estate: £500,000 − £325,000 = £175,000
- IHT at 40%: £175,000 × 40% = £70,000
- Nephew receives: £500,000 − £70,000 = £430,000
Example 3: Single homeowner with adult children
Claire, widow with two adult children. Estate: £450,000 (home £300,000 plus savings). Leaves home to children, savings split equally.
- Estate: £450,000
- Nil-rate band: £325,000
- RNRB: £125,000 (limited to the value of the home, which is less than the £175,000 max)
- Combined allowances: £450,000
- Taxable estate: £450,000 − £450,000 = £0
- IHT due: £0
Example 4: Married couple, second death
David and Eleanor, married, two adult children. David dies first leaving everything to Eleanor. When Eleanor dies, her estate is £900,000 (home £400,000 plus £500,000 in investments). Leaves home to children, rest split equally.
- Eleanor's estate: £900,000
- Nil-rate band: £325,000 + transferred from David: £325,000 = £650,000
- RNRB: £175,000 + transferred from David: £175,000 = £350,000
- Combined allowances: £1,000,000
- Taxable estate: £900,000 − £1,000,000 = negative — no IHT
- IHT due: £0
Example 5: Married couple, larger estate
Frank and Grace, married, two adult children. Frank dies first leaving everything to Grace. When Grace dies, her estate is £1,500,000 (home £600,000, investments £900,000).
- Grace's estate: £1,500,000
- Combined nil-rate band: £650,000
- Combined RNRB: £350,000
- Total allowances: £1,000,000
- Taxable estate: £1,500,000 − £1,000,000 = £500,000
- IHT at 40%: £500,000 × 40% = £200,000
- Children receive: £1,500,000 − £200,000 = £1,300,000
Example 6: Adding a 10% charitable bequest
Same as Example 5, but Grace leaves 10% of her net estate (after allowances) to charity to trigger the reduced 36% rate.
- Estate: £1,500,000
- Allowances: £1,000,000
- Pre-charity taxable estate: £500,000
- 10% to charity: £50,000
- Post-charity taxable estate: £450,000
- IHT at reduced 36% rate: £450,000 × 36% = £162,000
- Children receive: £1,500,000 − £50,000 (charity) − £162,000 (IHT) = £1,288,000
Compare to Example 5: the family receives £12,000 less, but a charity gets £50,000. The £38,000 IHT saving partially offsets the gift.
Example 7: Cohabiting couple
Henry and Iris, cohabiting (unmarried), two children together. Henry dies. Estate: £600,000 (his share of the home plus savings). Leaves everything to Iris.
- Estate: £600,000
- Spouse exemption: N/A — they're not married
- Nil-rate band: £325,000
- RNRB: depends on whether the home passes to direct descendants. Iris is not a direct descendant. RNRB NOT available unless the home passes to children later.
- Taxable estate: £600,000 − £325,000 = £275,000
- IHT at 40%: £275,000 × 40% = £110,000
This is the classic cohabiting-couples disadvantage. If they had been married, IHT would have been zero (spouse exemption). See our cohabiting couples guide.
How much do "normal" UK estates actually pay?
According to HMRC published data:
- The UK records around 600,000 deaths per year
- Of these, approximately 25,000-30,000 estates pay IHT (4-5%)
- The average IHT bill for those that pay is around £250,000-£300,000
- Total IHT receipts in 2024-25 were around £8 billion
For the 95%+ of estates that pay no IHT, the standard nil-rate band + RNRB + spouse exemption + charitable exemption easily cover everything.
What actually reduces IHT
### 1. Marriage and civil partnership
Anything left to a spouse or civil partner is IHT-exempt. Unused allowances transfer. For couples, this is the single biggest IHT-reduction lever.
### 2. The Residence Nil Rate Band
£175,000 per person if the home passes to direct descendants. See RNRB guide.
### 3. Charitable bequests
Gifts to UK charities are IHT-exempt. Leaving 10%+ of the net estate to charity drops the IHT rate on the rest from 40% to 36%. See charity gifts guide.
### 4. Lifetime gifts and the 7-year rule
Gifts you survive by 7 years fall outside your estate entirely. See 7-year rule guide.
### 5. Business and Agricultural Relief
For qualifying business interests and farms, up to 100% relief from IHT. Specialist tax advice essential.
### 6. Pension structuring
Most pensions pass outside the estate, often IHT-free. Increasingly important for high-net-worth families.
### 7. Trusts (carefully)
Some trust structures can defer or reduce IHT across generations. Complex and tax-sensitive — take regulated advice.
What does NOT meaningfully reduce IHT (the myths)
- Putting your home in trust during your lifetime to avoid care fees — these arrangements rarely save IHT and often create CGT problems
- Giving everything to your spouse to "use both allowances" — this works for the spouse exemption but the unused allowances transfer automatically anyway, so no extra benefit
- Buying a "main residence" you never live in — RNRB requires you to have lived in the property as your main home
- Hiding assets from HMRC — IHT investigation can go back 20 years where fraud is suspected; penalties are severe
Trusted Hands wills are designed to use the available allowances. For estates approaching or above £1 million in combined value, take advice from a regulated tax adviser — the IHT savings from good planning typically far outweigh the cost of advice. Start your will →
Frequently asked questions
What if my estate is exactly at the threshold?
Below the threshold = no IHT, no IHT form needed (just a simpler declaration in the probate application). At or above = full IHT return required, even where £0 IHT is due (to show the calculation).
Are joint assets included in my estate for IHT?
Property held as joint tenants passes by survivorship and is included in your estate at your share's value. Joint bank accounts are similarly assessed at your share.
Do gifts during my lifetime count toward IHT?
Gifts in the 7 years before death are included in the IHT calculation (with taper relief reducing the IHT on gifts made 3-7 years before death). Gifts more than 7 years before death are excluded entirely.
What if my estate includes a business?
Business Relief can provide 50% or 100% IHT relief for qualifying business interests. The rules are complex; take advice.
Can I claim my deceased spouse's RNRB if they died before 2017?
Yes. The "transferred RNRB" applies even if the first spouse died before the RNRB was introduced. The percentage of unused RNRB is applied to the rate at the second death.
Are my children's gifts during my lifetime counted?
Only gifts you made. Gifts your children received from others (e.g. from grandparents) are not in your estate.
When is IHT due?
Within 6 months of the date of death. Interest accrues if late. The IHT must be paid (or arrangements made) before the grant of probate can issue, so liquidity matters.
What if my family can't afford the IHT bill?
IHT on the home and certain other assets can be paid in instalments over 10 years. Otherwise, executors may need to take an estate loan or sell assets to fund the payment.
What's the inheritance tax rate?
40% on the amount of the estate above the nil-rate band (plus RNRB if applicable). Reduced to 36% if 10%+ of the net estate passes to charity.
Trusted Hands is a UK will-writing service, not a tax adviser. The examples above are illustrations — your actual position depends on the specifics of your estate. For estates near or above the IHT threshold, take advice from a regulated tax adviser specialising in IHT.
Build a will designed to minimise IHT exposure
Trusted Hands wills use the available allowances automatically and flag situations where additional tax planning may help.
- From £49 for a single will
- Smart Will Engine flags IHT exposure based on your answers
- Free Executor Pack with IHT guidance
- Solicitor partnership for complex tax planning