Death and taxes, in one page

Inheritance Tax

A tax on what you leave behind, above a certain amount. Most estates don’t pay it. Here’s how it works, and what’s exempt.

Plain English, and nobody will try to sell you anything.

The basics.

A tax-free allowance. Currently the first £325,000 of an estate is tax-free: the nil-rate band.
More for your home. Currently up to £175,000 more, the residence nil-rate band, if your home goes to your children or grandchildren. It shrinks for larger estates.
Above that, 40%. Tax is currently charged at 40% on the part of the estate above the allowances.
Spouses and charities are exempt. Anything left to a husband, wife or civil partner, or to charity, is usually free of Inheritance Tax.

Rules change, and every estate is different. These are the usual first steps.

Add up your estate.
Your home, savings, investments and belongings, minus debts. Include any life insurance that isn’t in trust.
Step 1
Check what’s exempt.
Gifts to a spouse, civil partner or charity, and the allowances. You may owe nothing.
Step 2
Get advice if it’s close.
A solicitor, accountant or regulated financial adviser can explain your options, from gifts to trusts to cover.
Step 3

Short answers. The rules apply across the UK, and they can change.

Can my husband, wife or civil partner use my allowance?
Yes. Any nil-rate band you don’t use can usually pass to them, so a couple can currently leave up to £650,000 tax-free, or more with the residence allowance.
What about gifts I make while I’m alive?
Gifts are usually free of Inheritance Tax if you live for seven years after making them. Some smaller and regular gifts are exempt straight away.
Does leaving money to charity help?
Gifts to charity are exempt. If you leave at least 10% of your estate to charity, the rate on the rest can currently fall to 36%.
Is life insurance subject to Inheritance Tax?
It can be, if the payout goes into your estate. A policy written in trust is usually kept outside it.
Can life insurance pay the bill?
Some people use a whole of life policy, in trust, to leave money for their family to pay Inheritance Tax. It’s worth getting advice first.
When does it have to be paid?
Usually by the end of the sixth month after the death, and some of it before probate is granted. The executors pay it from the estate.

The official rules

Thresholds, exemptions and how to pay: gov.uk/inheritance-tax.

Life insurance in trust

How a trust keeps a payout out of your estate: see putting cover in trust.

Whole of life cover

Cover that always pays out: see whole of life insurance.

Ask a real person about Inheritance Tax and your cover. We’ll tell you when you need a tax adviser.

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