What is Inheritance Tax (IHT)?

Inheritance Tax (IHT) is a tax on the estate (the property, money, and possessions) of someone who has passed away. If you inherit a property, IHT may apply depending on the estate’s total value and who is inheriting it.

While not every estate is liable for IHT, it’s essential to understand how it works, especially if you’ve inherited property or are planning your estate for future generations.

When Does Inheritance Tax Apply?

IHT is usually charged if the estate’s total value exceeds £325,000. This threshold is known as the nil-rate band.

However, if a home is passed on to a direct descendant (such as a child or grandchild), the estate may also benefit from the residence nil-rate band, which can increase the threshold by an additional £175,000 (as of 2025–26).

Together, this means many estates can pass on up to £500,000 tax-free—or up to £1 million for married couples or civil partners if both thresholds are used.

How Much is Inheritance Tax?

  • The standard rate is 40%, applied to the value of the estate above the tax-free threshold.
  • A reduced rate of 36% may apply if 10% or more of the estate is left to charity.

Inheriting a Property: What You Need to Know

If you inherit a property:

  • The estate pays IHT, not the individual beneficiary.
  • You may face Capital Gains Tax later if you sell the property and it has increased in value.
  • If the estate includes multiple beneficiaries, property may need to be sold to divide assets or pay IHT due.

In some cases, beneficiaries may need to arrange financing or sell assets to cover the tax owed.

📌 Tip: There are legal ways to reduce IHT liability, including gifting assets during your lifetime or setting up trusts. Early planning is key.

Who Pays Inheritance Tax and When?

  • IHT is usually paid by the executor of the will or administrator of the estate.
  • Payment is typically due within 6 months of the person’s death.
  • Interest may be charged on late payments.

Inheriting or Planning to Leave a Property?

We understand that dealing with property during sensitive times can be stressful. Whether you’ve inherited a home or want to prepare your estate wisely, our team can connect you with trusted legal and tax professionals to ensure everything is handled correctly and with care.

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