Inheritance Tax
What is Inheritance Tax, and Does the Estate Need to Pay It?
Inheritance Tax (IHT) is a tax on the value of a deceased person’s estate above certain thresholds. It is charged at 40% on the portion of the estate that exceeds the available tax-free allowance. A number of exemptions and reliefs can significantly reduce or eliminate the liability. Most estates do not pay Inheritance Tax.
The nil rate band
Every individual has a standard nil rate band of £325,000. Assets up to this value can pass free of IHT. The NRB has been at this level since 2009 and is frozen until at least April 2030.
The Residence Nil Rate Band
Where a residential property passes to a direct descendant, an additional allowance called the Residence Nil Rate Band (RNRB) is available, currently up to £175,000 per person. Combined with the standard NRB, a qualifying individual may be able to pass up to £500,000 free of IHT.
Transfers between spouses
Assets passing between married couples or civil partners are generally exempt from IHT at the point of the first death. Any unused nil rate band and RNRB can also be transferred to the surviving spouse’s estate.
When does IHT have to be reported?
Even if no IHT is due, the estate’s value must still be reported as part of the probate application. For most estates, which are excepted estates, this is done by entering the estate’s values directly on the probate application, and nothing is sent to HMRC. Where the estate is not excepted, an IHT400 is sent to HMRC first. An estate can be non-excepted even when no Inheritance Tax is due. YouCanDoProbate performs every IHT calculation automatically and completes the IHT400 and all required supplementary schedules where they are needed.
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