UK Death Duties: Understanding Inheritance Tax in the United Kingdom

In the UK, death duties, more commonly known as Inheritance Tax (IHT), apply to the estate of a deceased individual, encompassing property, money, and possessions. Navigating the intricacies of inheritance tax can be daunting, but understanding its fundamental aspects can make the process more manageable.

What are UK Death Duties?

UK death duties are levied on the estate of a deceased individual. The standard Inheritance Tax rate is 40%, applied only to the portion of the estate exceeding the tax-free threshold. For the 2025/26 tax year, the tax-free threshold, or nil-rate band, is set at £325,000 per individual. Moreover, if you bequeath your home to direct descendants such as children or grandchildren, you may benefit from an additional residence nil-rate band (RNRB) of £175,000, potentially raising the total tax-free allowance to £500,000 per person.

Inheritance Tax for Couples

Married couples or civil partners can combine their allowances, effectively doubling the tax-free amount. Any unused nil-rate band and residence nil-rate band can be transferred to the surviving partner. This means a couple could leave up to £1 million tax-free to their descendants, assuming they meet the criteria for both allowances. According to Legal & General, this transferability is a significant advantage for those planning their estate meticulously.

Exemptions and Reductions

No inheritance tax is payable if the estate’s value falls below the £325,000 threshold or if everything above this threshold is left to a spouse, civil partner, charity, or community amateur sports club. However, for estates exceeding £2 million, the residence nil-rate band is reduced by £1 for every £2 over £2 million, potentially diminishing the additional allowance for higher-value estates, as outlined by the HomeOwners Alliance.

Gifting and Taper Relief

Gifts made within three years before death are generally subject to the 40% tax rate. However, gifts made between three and seven years prior to death benefit from taper relief, reducing the tax rate as follows:

• 0-3 years: 40%
• 3-4 years: 32%
• 4-5 years: 24%
• 5-6 years: 16%
• 6-7 years: 8%
• More than 7 years: 0%

For more on gifting and inheritance tax implications, visit GOV.UK.

Assets Exempt from UK Death Duties

Certain types of assets and transfers are exempt from UK death duties. These include specific business assets, agricultural property, and gifts made more than seven years before death, which may qualify for relief or exemption. Understanding these exemptions can be crucial for effective estate planning, as explained in Price Mann’s guide on inheritance tax essentials.

Charitable Donations and Tax Reductions

If you choose to leave at least 10% of your estate’s net value to charity in your will, you can reduce the inheritance tax rate on the remainder of the estate to 36%. This potential reduction provides an incentive for charitable giving as part of estate planning.

Executor’s Responsibilities

The executor (or administrator, if there isn’t a will) handles reporting the estate’s value and arranging any required Inheritance Tax payments. Usually, these taxes are settled from the estate’s assets before distribution to beneficiaries. For detailed information on the executor’s role and tax arrangements, consult the UK Government’s guide on inheritance tax.

Understanding UK death duties—also known as Inheritance Tax—is essential for anyone involved in estate planning or probate in the United Kingdom. By familiarizing yourself with these laws, exemptions, and relief options, you can ensure your estate is managed according to your wishes and minimize tax liabilities for your heirs.