When someone you love dies, there is so much to think about. Alongside the grief, the funeral arrangements, and the many practical matters that need attention, families often find themselves facing unfamiliar legal and financial questions. One of the most common is inheritance tax. The term alone can feel daunting, particularly when you are already carrying so much. But for most families in the UK, inheritance tax will not apply at all. For those who are affected, understanding how it works can make the process a little less overwhelming.

This guide explains what inheritance tax is, when it applies, and what families need to know when dealing with a loved one's estate. It is written as a plain English introduction rather than professional advice, and we would always encourage you to speak to a solicitor or estate specialist if you need guidance specific to your situation.

What Is Inheritance Tax?

Inheritance tax is a tax on the estate of someone who has died. The estate includes everything the person owned at the time of their death, such as their home, savings, investments, personal possessions, and any significant gifts made within seven years before they died. Any debts the person owed, including a mortgage, are deducted before the tax is worked out.

The tax is paid from the estate itself, before anything is passed on to the people named in the will. The executor, the person appointed to carry out the wishes in the will, is responsible for calculating and paying any inheritance tax due. If there is no will, this falls to the administrator of the estate, usually a close family member.

Only around one in twenty-five estates in the UK pays inheritance tax. The majority of families will not be affected. Whether it applies depends on the total value of the estate and who is inheriting it.

The Tax-Free Threshold

Every person in the UK has a tax-free allowance for inheritance tax, called the nil rate band. For 2026 to 2027 this is £325,000. If the estate is worth less than this, no inheritance tax is due. If it is worth more, inheritance tax is charged at 40% on the amount above the threshold only, not on the whole estate.

As a simple example, if someone dies leaving an estate worth £450,000, inheritance tax would apply to £125,000 of that, which is the portion above the £325,000 threshold. At 40%, that results in a tax bill of £50,000. The rest of the estate passes to the beneficiaries free of tax.

The threshold has been frozen at £325,000 since 2009 and will stay at this level until at least 2031. Because property values have risen so much over this period, more families are finding that estates they would not previously have thought of as taxable are now above the threshold, particularly those that include a family home.

When a Home Is Left to Children or Grandchildren

If the person who has died is leaving their home to their children, grandchildren, stepchildren, or adopted children, an additional tax-free allowance called the residence nil rate band may be available. For 2026 to 2027 this is £175,000.

When both allowances apply, a single person can pass on up to £500,000 free of inheritance tax. For married couples and civil partners, any unused allowance from when the first partner died can be transferred to the surviving partner's estate. This means a couple may be able to leave up to £1 million to their children without any inheritance tax being due.

This additional allowance begins to reduce for estates worth more than £2 million, so it is worth taking professional advice if the estate is likely to fall in this range.

Gifts Made Before Death

One area that surprises many families is the way gifts made before death are treated. If someone gave away significant sums of money or assets within the seven years before they died, those gifts may be counted as part of the estate for inheritance tax purposes.

Gifts made more than seven years before death are generally not subject to inheritance tax. Those made between three and seven years before death may be partially taxed on a sliding scale that reduces the further from the date of death the gift was made. This is known as taper relief.

There are also annual exemptions that allow people to give away certain amounts each year without those gifts affecting the estate. These include a yearly allowance of £3,000 and smaller exemptions for wedding or birthday gifts. Gifts between spouses and civil partners are always entirely exempt from inheritance tax, whatever the amount.

Estates That Are Exempt

There are several important situations where inheritance tax does not apply:

• Everything left to a surviving spouse or civil partner who lives in the UK is completely exempt from inheritance tax, regardless of the value.

• Gifts to registered charities are exempt. If at least 10% of the estate is left to charity, the rate of inheritance tax on the remainder is reduced from 40% to 36%.

• Certain business assets and agricultural property may qualify for significant relief, reducing or in some cases eliminating inheritance tax on those parts of the estate.

• Life insurance policies written in trust are usually not counted as part of the estate and do not attract inheritance tax.

When Does Inheritance Tax Need to Be Paid?

Inheritance tax must be paid to HMRC within six months of the end of the month in which the person died. Interest is charged on anything unpaid after this point. This can create real pressure for families, especially where most of the estate's value is in property that cannot be sold quickly.

HMRC does allow inheritance tax on some assets, including property, to be paid in annual instalments over ten years. This can ease the immediate financial burden, though interest continues to build on the outstanding balance throughout.

Before probate can be granted, the executor must submit an inheritance tax account to HMRC and pay at least the first instalment of any tax due. HMRC will then issue a code needed to complete the probate application. A solicitor with experience in estate administration can walk you through this process and make sure nothing is missed.

Where to Start If You Are Managing an Estate

If you are dealing with a loved one's estate and are not sure whether inheritance tax applies, the most helpful first step is to get a rough sense of the total value of what they owned. This does not need to be precise straight away but will help you and any professional advisers understand the likely position.

The GOV.UK website provides a free inheritance tax calculator that can give families an initial sense of whether tax may be due. For anything beyond a straightforward estate, speaking to a solicitor or specialist estate administrator as early as possible will save time, reduce stress, and help ensure everything is handled correctly.

How The Farewell Guide Can Help

At The Farewell Guide, we understand how much there is to navigate after losing someone. Our support centre provides free guidance on every part of what to do after a death, from registering the death and arranging a funeral to understanding probate and finding the right professional support. Our free funeral planning tool also allows people to record their own wishes in advance, including guidance for their family on financial and estate matters, so that the people they love are not left to figure everything out alone. Visit www.thefarewellguide.co.uk to access our full range of free tools and resources.