1What Is Inheritance Tax?
Inheritance Tax (IHT) is a tax levied by HMRC on the value of a deceased person’s estate above certain thresholds. It is paid by the estate before assets are distributed to beneficiaries — not by the beneficiaries themselves — and it is one of the most significant financial obligations an executor faces.
IHT is charged at 40% on the taxable value of the estate. However, in practice, many estates pay a much lower effective rate once all available allowances and reliefs have been applied.
2IHT Rates & Nil-Rate Bands (2024–25)
| Allowance | Amount | Available To |
|---|
| Nil-Rate Band (NRB) | £325,000 | All estates |
| Residence Nil-Rate Band (RNRB) | £175,000 | Where main home passes to direct descendants |
| Married/civil partner transfer (NRB) | £325,000 | Surviving spouse if not used on first death |
| Married/civil partner transfer (RNRB) | £175,000 | Surviving spouse if not used on first death |
| Combined maximum (surviving spouse) | £1,000,000 | Married couples / civil partners |
| IHT rate above nil-rate bands | 40% | All taxable estates |
| Reduced rate (10%+ to charity) | 36% | Where ≥10% of net estate left to charity |
Note: The government has frozen the nil-rate bands at current levels until at least April 2030. As property values have risen, more estates are falling into IHT.
How to calculate IHT
- Total all assets (property, savings, investments, personal possessions, business interests).
- Deduct liabilities (mortgages, credit cards, funeral expenses).
- Deduct any applicable nil-rate bands and reliefs.
- Apply 40% to the remaining taxable estate.
Example: An estate valued at £800,000. The deceased was unmarried. Nil-rate band: £325,000. RNRB (main home left to child): £175,000. Total allowance: £500,000. Taxable estate: £300,000. IHT at 40%: £120,000.
3HMRC’s 6-Month Deadline
This is the single most important deadline for executors to understand. HMRC requires IHT to be paid within six months of the end of the month in which the deceased died.
So if someone died on 15 March 2025, IHT must be paid by 30 September 2025 — regardless of whether probate has been granted, whether the property has sold, or whether the estate has liquid funds available.
After the 6-month deadline: HMRC charges interest on unpaid IHT at the official rate (currently 7.5% per year as of April 2025). Late payment can also delay the Grant of Probate significantly.
The IHT catch
The probate application cannot be submitted until HMRC confirms that IHT has been paid (or that no IHT is due). But the Grant of Probate is what gives the executor access to the estate’s funds. This creates a circular problem:
- You cannot access estate money without probate.
- You cannot get probate without paying IHT first.
- If the estate has no cash (because all value is tied up in property), the executor must find another way to pay.
The solution: An IHT Direct-to-HMRC loan funds the tax liability and pays HMRC directly using the estate’s IHT reference. The executor never handles the money. Once HMRC confirms receipt, the probate application can proceed immediately.
Pay IHT directly to HMRC — without touching the estate
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4How to Pay Inheritance Tax
IHT can be paid through several methods, which HMRC sets out in its IHT400 guidance notes:
| Method | Notes |
|---|
| Direct payment from deceased’s bank account | Banks can pay HMRC directly from accounts in the deceased’s name under the “Direct Payment Scheme” — but must have sufficient funds. |
| Executor’s own funds | The executor can pay personally and reclaim from the estate later — but carries personal risk if the estate proves insufficient. |
| Sold assets / property | If assets must be sold first, a first instalment can be paid and the rest paid in annual instalments (for property and certain other assets). |
| IHT loan (via lending partner) | A specialist lender pays HMRC directly using the estate’s IHT reference. No personal liability. Repaid from the estate on completion of probate. |
Paying IHT in instalments
HMRC allows IHT attributable to certain assets (including property) to be paid in 10 equal annual instalments, rather than all at once. Interest applies on outstanding amounts. This can help with cash-flow but does not eliminate the 6-month deadline for the first instalment.
5Key IHT Reliefs & Exemptions
- Spouse/civil partner exemption: Assets passing to a surviving UK-domiciled spouse or civil partner are entirely exempt from IHT, regardless of value.
- Charity exemption: Gifts to UK registered charities are exempt. Leaving 10% or more of the net estate to charity reduces the IHT rate to 36%.
- Business Property Relief (BPR): Up to 100% relief on qualifying business assets held for at least 2 years.
- Agricultural Property Relief (APR): Up to 100% relief on qualifying agricultural land and property.
- Annual gift exemption: Up to £3,000 given away each tax year is immediately outside the estate. Smaller gifts (£250 per recipient) and wedding gifts also attract specific exemptions.
- Potentially Exempt Transfers (PETs): Gifts made more than 7 years before death are completely free of IHT. Those made within 7 years are subject to taper relief.
6Frequently Asked Questions
IHT is paid by the estate before distribution to beneficiaries. It is the executor’s legal responsibility to ensure it is paid. Beneficiaries do not pay IHT on what they receive, though gifts made within 7 years of death may be subject to taper relief.
No. Assets passing to a surviving UK-domiciled spouse or civil partner are entirely exempt from IHT. Their unused nil-rate band and RNRB can also be transferred to the surviving spouse’s estate, potentially allowing a combined tax-free threshold of £1,000,000.
This is very common, especially when the estate’s primary asset is a property that has not yet been sold. Options include using the Direct Payment Scheme (if the deceased had sufficient cash), paying in instalments where eligible, or arranging an IHT loan that pays HMRC directly from secured lending against the estate.
Defined contribution pensions currently sit outside of the estate for IHT purposes, as they are generally not considered part of the estate at death. However, the government has announced that from April 2027, unused pension pots will be included in the taxable estate. This is subject to legislation.