What Is inheritance tax?

When someone passes away, beneficiaries of their estate may need to pay a tax on anything they inherit, including money, property, and possessions, otherwise known as inheritance tax. The standard inheritance tax is 40%.

How much can you inherit without paying taxes?

You are allowed to inherit up to £325,000 without paying tax (an amount referred to as the Nil-rate Band or NRB), but anything above that limit is subject to the standard rate of 40%. If you are married or in a civil partnership, the unused portion of that limit can transfer to your surviving partner, doubling the tax-free threshold to £650,000 for the couple.

The Residential Nil-Rate Band (RNRB) is an additional allowance that helps families pass on their home to their direct descendants (children and grandchildren). The RNRB is set at £175,000 per person, so a single person can inherit up to £500,000 tax-free (£325,000 + £175,000) or £1 million for married couples or civil partners. These tax rates are unchanged in 2024 and are frozen until 2030.

What changed in 2024?

One change in 2024 aims to make the reporting process simpler for smaller estates. Estates under £3 million now enjoy a less complex system of reporting. Another positive change is that as of April 2026, beneficiaries of business and farming assets valued at less than £1 million will not have to pay any inheritance tax. Amounts above £1 million will receive 50% relief, meaning they will pay 20% rather than 40% on their inheritance.

Looking further into the future, as of 2027, pensions will be included in a person’s total estate. This is a less popular change since pensions are not currently subject to inheritance tax.

Ways to reduce inheritance tax

Remember that for most of us, inheritance tax won’t be an issue. You can inherit your parent’s house and assets and, as long as the total value is under £500,000, you won’t have to pay any tax. But if you are concerned about leaving a tax burden for your loved ones, there are ways to lessen tax owed by gifting assets or setting up a trust.

It’s always a good idea to talk to a financial professional to strategise for the future. You will find comfort in knowing that your family will be cared for even after you’re gone. Contact one of our advisers for more information on how you can plan now for your loved one’s future.