When someone dies, everything they owned – their money, property and possessions – is called their estate.

Inheritance Tax might need to be paid on the estate before anything can be passed on.

Inheritance Tax is usually not charged if:

• the estate is worth less than £325,000, known as the nil rate band, or
• the estate is left to:
  •  the person’s husband, wife or civil partner
  •  a charity or community sports club.

If the main home is left to children or grandchildren, the £325,000 nil rate band might increase up to £500,000 – based on the value of the home. Find out more on GOV.UK about the residence nil rate bandOpens in a new window

If the estate includes a business or farm, these might qualify for an Inheritance Tax discount of 50% or 100%. Find out more on GOV.UK about:

• Business Relief for Inheritance TaxOpens in a new window
• Agricultural Relief for Inheritance TaxOpens in a new window

If the person who died was married or in a civil partnership, any unused tax-free allowance from their estate can be passed to their surviving partner.

These are called transferable nil rate bands and means the tax-free limit could increase to £1,000,000. Find out more on GOV.UK about Transferring unused Inheritance Tax thresholdsOpens in a new window

If Inheritance Tax applies, anything above the tax-free limit is charged at 40%.

Depending on what has been left, there might be other taxes to pay. This includes:

• Income Tax if the inherited item gives an income – such as rental income from a property or dividends on shares.
• Capital Gains Tax if an inherited item is sold for more than it was valued at when the person died.

Receiving an inheritance might also reduce or stop any means-tested benefits. For more information, see our guide How do savings and lump sum payouts affect benefits?

To work out the value of an estate:

• list everything the person owned
• work out each item’s value on the date of death
• subtract any debts from the total.

Keep records of how you got the values as HMRC can ask to see them for up to 20 years. For example, a copy of a property valuation from an estate agent.

The value of an estate for Inheritance Tax should include:

• money in bank accounts
• property or land
• vehicles, jewellery and personal belongings
• shares and investments
• Premium Bonds
• insurance payouts
• jointly-owned items
• certain gifts made in the last 7 to 14 years – or more if someone received a benefit for the gift, like giving away a home but continuing to live in it.

Find out more about the 14-year Inheritance Tax ruleOpens in a new window on The Gazette and see our guide about Inheritance Tax rules on gifts.

From 6 April 2027, unused pension money and death benefits will count as part of the estate for Inheritance Tax. The executor will need to tell HMRC about these and pay any tax owed. Pension companies will provide the information but won't pay the tax for you.

You can take off things like:

• mortgage and credit card debts
• unpaid bills
• reasonable funeral costs.

Costs after someone dies, including legal fees and probate costs, do not reduce how much Inheritance Tax you pay. But these costs are still paid from the estate before anyone inherits their share.

If there's a will, the executor pays any Inheritance Tax from the estate. If there's no will, the administrator does this job instead.

For Inheritance Tax on gifts made in the 7 years before death, the person who received the gift pays the tax due on that gift.

If you need to pay Inheritance Tax, you need to get a reference number at least 3 weeks before you make a payment. This can be done by post or online.

Inheritance Tax is usually paid using the estate’s money. For example, cash funds, a life insurance payout or selling property and other items.

Most Inheritance Tax is paid through the Direct Payment Scheme (DPS), where money is taken directly from the deceased’s bank account. You can find more about DPSOpens in a new window on GOV.UK.

Once taxes and debts are paid, the rest of the estate can be passed on.

After someone has died, the executors or administrators of their estate must:

• Pay Inheritance Tax by the end of the sixth month to avoid interest being charged. It also usually needs to be paid before they get the Grant of Representation, often called probate. This is the legal right to deal with someone's estate.
• Submit the full account to HMRC within 12 months of the death or when they started acting as executor.

For some assets like property, executors can pay Inheritance Tax in up to 10 yearly instalments – the first due by the end of the sixth month. But if the asset is sold early, all remaining tax and interest must be paid straight away.

Late penalties are normally only reduced if there's a good reason like illness or bereavement.

After everything's sorted, HMRC will refund any tax that was overpaid.

If you’re worried about your estate being subject to Inheritance Tax after you die, there are things you could consider doing.

For example, you could reduce the value of your estate by:

• leaving money to charity
• regularly giving up to £3,000 a year in gifts
• putting your assets into a trust.

A trust lets you set aside money, property or investments for someone else after you die. This can help you keep control over when and how someone get access to assets, such as a young or vulnerable person.

This might also mean those assets no longer count as yours for tax purposes. But the rules are complicated, so always speak to a solicitor or financial adviser to make sure it’s right for you.

For a trust to work, you’ll need to:

• decide which assets to put into trust
• choose who you’d like to receive the assets, called your beneficiaries
• select people you trust to manage the assets on behalf of the beneficiaries, called the trustees.

When making a will, you might be offered trusts to pass on assets.

Most trusts create extra tax costs and paperwork, so are not always needed. But special trusts for vulnerable people usually means they pay less tax on income and profits. For example, if you have a child with a disability or an orphaned child who cannot manage money.

For more information, see:

• Trusts and taxesOpens in a new window on GOV.UK
• Tax implications of trustsOpens in a new window on The Gazette
• Ways to avoid Inheritance TaxOpens in a new window on Which? 

Life insurance can help your beneficiaries pay Inheritance Tax without selling your home or other assets.

You might not need it if your estate has enough cash or easy-to-sell assets. HMRC also allows people to pay Inheritance Tax in instalments if assets take time to sell.

There are two main types:

• Whole-of-life insurance covers you for life and pays out when you die, as long as you keep paying premiums.
• Term insurance covers a set period. It's often used to cover potential Inheritance Tax on large gifts made in the last 7 years.

Setting up life insurance for Inheritance Tax can be complicated, so get advice from a solicitor or financial adviser.

Find out more about:

• life insurance written in trustOpens in a new window on Which?
• whole-of-life policies and term insurance policiesOpens in a new window on MoneySavingExpert

A regulated financial adviser can give you personalised advice on Inheritance Tax, including:

• explaining the rules that apply to you
• making sure you’re using all the available tax allowances
• recommending ways to reduce tax on your estate after you die.

For more information, see our guide How to choose a financial adviser.

You can find a solicitor in:

• England and Wales on The Law SocietyOpens in a new window
• Scotland on The Law Society of ScotlandOpens in a new window
• Northern Ireland on Law Society of Northern IrelandOpens in a new window

You can contact HMRC for help understanding Inheritance Tax rulesOpens in a new window