Inheritance Tax in the UK: the £325,000 threshold, the 40% rate and the seven-year rule

Inheritance Tax in Britain is feared for its 40% rate, but far from everyone pays it: there is a threshold, and around that threshold sit uplifts and exemptions people learn about too late. Here are the figures and the deadlines in one place.

From what amount is it payable?

The threshold is £325,000. If the estate is below it, there is normally no tax. The 40% rate applies only to the part above the threshold, not the whole estate. The official example: on a £500,000 estate, the tax is 40% of £175,000.

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When does the threshold rise to £500,000?

When you leave your home to your children — including adopted, foster or stepchildren — or to grandchildren. The threshold can then rise to £500,000. That is the uplift that leaves many families paying nothing.

What if everything goes to a spouse?

Then normally no Inheritance Tax is due: everything above the threshold passes to a spouse or civil partner tax free. More than that, any unused threshold transfers: if the first estate came in below its threshold, the remainder is added to the survivor's.

When is there no tax at all?

Two cases. The estate is below the £325,000 threshold. Or everything above the threshold goes to a spouse, civil partner, charity or community amateur sports club.

Is there a reduced rate?

Yes. Leave 10% or more of the net value of the estate — the value after debts — to charity in your will, and the rate on some assets falls from 40% to 36%.

How are lifetime gifts treated?

A recipient may owe tax only if the giver gave away more than £325,000 and died within 7 years. The more years that passed, the lower the rate — taper relief:

3 to 4 years, 32%. 4 to 5 years, 24%. 5 to 6 years, 16%. 6 to 7 years, 8%. Seven years or more, nothing.

Which gifts do not count at all?

The annual exemption is £3,000 of gifts per tax year, which can be split between recipients, with any unused amount carried forward one tax year. Separately, small gifts of up to £250 per person per year are exempt, provided no other allowance has been used on that same person. Wedding gifts: £5,000 to a child, £2,500 to a grandchild or great-grandchild, £1,000 to anyone else. Gifts to a spouse or civil partner are unlimited, provided they live permanently in the UK and you are legally married or in a civil partnership. Gifts to charities and political parties are exempt.

When must it be paid?

By the end of the sixth month after the death. A death in January means payment by 31 July. Trusts have their own due dates. HMRC charges interest after the deadline. Payment in yearly instalments is an option, as are payments on account before the exact figure is known.

Checked against GOV.UK on 27 October 2026. This is general information, not individual tax advice.