Inheritance tax explained Your inheritance tax bill

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Adding up your IHT bill will help you work out what to do

Work out the value of your estate

To work out the value of your estate, add up:

  • Any gifts you made in the last seven years that attract IHT (taxable lifetime gifts and any potentially exempt transfers)
  • Your property (including property abroad), cash belongings, savings and investments and life insurance paid to your estate on your death that’s not written under trust. Include your share of anything you own jointly.
  • Gifts you’ve made where you’ve retained some benefit – for example, a house you have given to someone but still live in.
  • Assets held in certain types of trust from which you get some benefit – an income, say.

After that, subtract the value of:

  • Your debts (such as a mortgage) and reasonable funeral expenses
  • Gifts made on death that are exempt from inheritance tax

What you pay

If the total is below the tax-free allowance (currently £325,000 for a single person or up to £650,000 for married couples, civil partners and most widows, widowers and surviving partners of a civil partnership), there’s no IHT to pay. If it is above the allowance, the excess is currently taxed at 40% when you die.

Inheritance tax rule changes 

In the 2015 Summer Budget, the Chancellor, George Osborne announced a new transferable main residence allowance, which will gradually increase from £100,000 in April 2017 to £175,000 per person by 2020/21. This is in addition to the main nil-rate band. It will effectively raise the IHT-free allowance to £500,000 per person. Where married couples jointly own a family home and want to leave this to their children, the total IHT exemption will be £1m. 

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Last updated:

April 2016

Updated by:

Ian Robinson


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