The inheritance tax threshold for 2023/24 is £325,000. Anything over the threshold is liable to 40% tax – but it doesn’t apply to every case.
What is the inheritance tax threshold for 2023/24?
The inheritance tax threshold for individuals in 2023/24 is £325,000 – this is also known as the nil rate band. This is expected to be frozen until 5 April 2028.
In simple terms, the nil rate band is the value of property, money, personal possessions and shares that can be passed on tax-free, when someone dies.
Anything over the nil rate band amount is usually taxed at 40%. However, tax relief may apply in certain circumstances. This can increase the threshold and reduce the amount of tax to pay, for example:
If gifts are left to a spouse or civil partner – gifts between spouses/civil partners are tax free, and if the tax relief isn’t used by one person in the relationship, it automatically passes to the other on their death, giving a potential nil rate band of up to £650,000.
If gifts of residential property are left to a child - there is an additional ‘residence nil rate band’ of £175,000 which applies to the value of residential property when it’s left to a child.
A specialist will be able to help you calculate if there is additional tax relief available in your situation.
How much is inheritance tax?
The inheritance tax rate is usually charged at 40% of everything over £325,000. This means that, if the estate is worth £425,000, it would be liable to £40,000 in inheritance tax.
However, if more than 10% of the net estate is left to charity, the inheritance tax rate may be reduced to 36%.
What is the inheritance tax threshold for married couples?
As individuals, you each have a nil rate band of £325,000 – that means there’s no tax to pay on any gifts you receive up to that amount. A gift could include:
personal items, like furniture, jewellery or antiques
a property, like a house, land or buildings
stocks and shares
Gifts between spouses or civil partners are tax free. This means that spouses or civil partners who leave everything to each other won’t use their individual nil rate band. Instead, it automatically transfers to the estate of the survivor, doubling their own nil rate band to £650,000.
Does every estate have to pay inheritance tax?
No, inheritance tax is calculated based on the individual situation. For example:
If the value of the estate falls below the available nil rate band of £325,000 there will be no inheritance tax to pay.
If the entire estate has been left to the person’s spouse or civil partner there will be no inheritance tax to pay – even if the estate is over £325,000.
If the person who died has left all their estate or the portion of the estate over their nil rate band to a UK registered charity, there would be no tax to pay.
Does everyone have the same inheritance tax threshold?
The short answer: no. It’s actually possible for many people to double their inheritance tax allowance to £650,000. Here’s how:
If someone who is married leaves their entire estate to their spouse, their unused inheritance tax allowance of £325,000 will also pass to their partner. This effectively doubles the surviving spouse’s inheritance tax threshold to £650,000. The same benefit also applies to people in a civil partnership.
This means that, if someone’s spouse or civil partner dies and leaves them their entire estate, the surviving partner’s inheritance tax allowance will effectively be £650,000.
Who pays inheritance tax?
If there is a will, the executor is responsible for paying the inheritance tax bill from the estate. If there isn’t a will, this is usually handled by the administrator.
Figuring out exactly how much inheritance tax is due can be difficult, so many people choose to use a professional probate service when dealing with their loved one’s estate.
Once the amount of inheritance tax owed has been calculated, this can either be paid from funds within the estate, money from the sale of assets, or through the Direct Payment Scheme (DPS). This is where inheritance tax is paid directly from the bank or building society of the person who died.
5 ways you can pay less Inheritance Tax
There are different way you can use tax relief to lower the amount of inheritance tax you need to pay, including:
Leaving everything to a spouse or civil partner: married couples and civil partners can leave assets to one another without incurring inheritance tax.
Leaving property to children: homeowners get an extra £175,000 added to their inheritance tax allowance if they leave their residential property to their children, step-children or grandchildren, taking their total inheritance tax allowance to £500,000. This is known as the Residence Nil Rate Band, or RNRB. It does not apply when properties have been bought solely for business or investment. Just like the individual nil rate band, the RNRB is also transferable between married couples and civil partners. So if it is unused on the first death, the benefit will be transferred on the second. If the estate includes a property, and the total value of the estate is more than £2 million, residence nil rate band will reduce by £1 for every £2 that the estate is worth more than the £2 million taper threshold. This applies even when the property is left to direct descendants.
Leaving 10% of the estate to charity: if 10% of an estate is left to charity, the inheritance tax rate can be reduced from 40% to 36%, potentially cutting the amount of inheritance tax due by thousands.
If you're dealing with someone's estate and want to change their will to make it more tax efficient, you could get a legal document called a deed of variation.
When do you need to pay inheritance tax?
Inheritance tax ideally needs to be paid by the end of the sixth month after your loved one’s death. After this point, HMRC will start charging interest. They may also charge late payment penalties, which can be as high as £3,000 if the payment is more than 12 months late. So it’s important to apply for probate and gain access to the estate as quickly as possible. You can apply for probate yourself, or with the support of a specialist probate team.
If you are unable to pay inheritance tax in one go, you can pay the inheritance tax due on a property in 10 equal instalments, or until such time as the property is sold. You’ll need to pay the first instalment at the end of the sixth month.
How to fill out IHT400
IHT400 is a government form that needs to be completed in England, Wales and Scotland if the estate is liable for inheritance tax. This is a long, complex document with multiple sections for different types of assets, allowing you and HMRC to work out how much inheritance tax is due.
Unless you’re very familiar with tax forms and financial paperwork, IHT400 can be an extremely stressful and time-consuming form to fill out. For this reason, many people choose to use a professional probate service instead.
If you think you may need to pay inheritance tax and want help working out how much is due, call our probate specialists today on 020 3695 2090. We can provide a free, no obligation quote in just a few minutes.