Inheritance Tax: The facts

When you pass away, inheritance tax may cost your loved ones hundreds of thousands of pounds. In fact, HMRC received more than £7 billion in inheritance tax during the most recent tax year. 

How much Inheritance Tax will my family have to pay?

Inheritance Tax is based on the estate of the deceased. How much tax to pay will depend on which assets you have (cash in the bank, investments, real estate, business profits, payouts from life insurance policies), minus any debts, determines how much you must pay.

Inheritance Tax will not apply if:

• Your estate is worth less than £325,000, OR
• You leave your spouse, civil partner, a charity, or a local amateur sports team everything that exceeds £325,000.

If neither of the aforementioned situations applies, your estate will be subject to a 40% death tax on any assets worth more than £325,000 (or a 36% tax provided you donate at least 10% of the estate to charity in your will after any deductions).

Depending on your circumstances, this £325,000 tax-free threshold might be considerably higher — in rare cases, it could be as high as £500,000 or even $1 million. 

What if I'm married?

For persons who are married or in civil unions, there are additional rules that state:

• If your spouse or registered civil partner is still residing in the UK when you pass away, your assets will not be subject to inheritance tax.
• Together, a couple can currently leave £1 million tax-free (2 x £325,000 tax-free allowances + 2 x £175,000 main residence allowances). In addition, your partner's inheritance tax limit increases by the amount of your allowance that you didn't utilise.