What Inheritance Tax do I have to pay in the UK 2025

Discussing inheritance tax is likely not a topic you will relish, as it signifies the loss of someone close to you. However, it is better to be prepared for what lies ahead than to be caught off guard by the various rules surrounding this matter.  

Inheritance tax in the UK is levied on the estate of an individual who has passed away. If you're curious about what this tax encompasses, the estate includes property, money, and possessions. Inheritance tax is charged at a rate of 40% on amounts exceeding the £325,000 threshold, which may seem quite steep. The good news is that if you are inheriting smaller sums, you will not be liable for such a high tax.  

Additionally, transfers to a civil partner or spouse are exempt from inheritance tax, meaning you may not have to pay high taxes in certain circumstances. An unusual rule concerning taxes is that even gifts made during a person's lifetime may also be subject to tax if the individual dies within seven years of making those gifts.  

In April 2025, significant changes to the inheritance tax system will come into effect. Most people may not welcome these changes, but we will discuss them to prepare you for what is forthcoming. So, shall we begin? 

What Inheritance Tax Do I Have to Pay  

The inheritance tax you may have to pay in the UK depends on the value of the estate you inherit and your relationship with the deceased. If the estate's value exceeds £325,000, inheritance tax will be charged at 40% on the amount above that threshold. In cases where the deceased leaves their estate to a spouse, civil partner, or charity, the threshold will be higher, and there may be no tax to pay. Furthermore, you will also encounter other exemptions and reliefs, such as those for business or agricultural property.  

If you receive a gift from the deceased during their lifetime, this may be subject to inheritance tax if they pass away within seven years of giving the gift. You may not have realised that even gifts are subject to tax, but now you do! Gifts made within seven years of death may be taxed at a lower rate depending on how many years have elapsed since the gift was made.  

From April 2025, the inheritance tax system will undergo significant changes, which may not appear favourable, especially for individuals who have been residents in the UK for an extended period. The new "long-term resident" status means that individuals who have lived in the UK for at least 10 out of the past 20 years will be subject to inheritance tax on their assets worldwide, not just those in the UK. That's right; after these new changes take effect, you may have to pay taxes on estates even outside the UK in certain situations.  

In cases of inheriting an estate and facing high tax rates, we can provide you with a fair cash offer on the estate and assist you in obtaining sufficient funds to cover the taxes while still leaving something aside in case you are not interested in retaining the property.

What is the most you can inherit without paying taxes in the UK?  

If you are interested in the maximum amount you can inherit in the UK without concerning yourself with potential taxes, the answer is straightforward. There is no limit on how much you can inherit, but if you wish to know how much you can inherit without having to worry about those high taxes, there are a few situations to consider.  

• Standard tax-free threshold - The nil-rate band allows the first £325,000 of an estate’s value to be exempt from inheritance tax. This threshold applies to all individuals.  

• Residence nil-rate band (RNRB) - If the deceased leaves their home to a direct descendant, such as a child or grandchild, an additional £175,000 exemption may apply. Combined with the standard threshold, this can raise the tax-free amount to £500,000 per person.  

• Spouses and civil partners - Transfers to a civil partner or spouse are exempt from inheritance tax, regardless of the amount. Additionally, any unused portion of the deceased’s thresholds can be transferred to their civil partner or spouse, allowing for a combined tax-free threshold of up to £1 million in some cases.  

• Charities - Gifts left to charities are entirely tax-free, and estates that leave 10% or more of their value to charity may benefit from a reduced inheritance tax rate of 36% on the taxable amount.  

These exemptions ensure that many individuals can inherit property without having to worry about inheritance tax. However, any value above the mentioned amounts is typically taxed at 40%, so careful planning is essential. For estates subject to upcoming reforms in 2025, additional rules may apply to worldwide assets depending on the individual's residence status, but we will have to wait until those changes are implemented to determine if they are favourable or not. 

Will the inheritance tax change in 2025?  

Yes, the UK's inheritance tax system is set to change in 2025. These changes were announced in the 2024 Autumn Budget, which mentioned alterations such as the introduction of long-term resident status. So far, we are aware of three changes that are set to take place, so let’s explore them.  

• Introduction of long-term resident (LTR) status - Starting in April 2025, individuals who have been UK residents for at least 10 out of the last 20 tax years will be classified as long-term residents. This status means they will be subject to inheritance tax on their assets worldwide, not just those based in the UK.

• Impact on non-domiciled individuals - Under the new rules, domicile status will no longer determine inheritance tax exposure. Instead, long-term residents will be taxed on their global assets, while those not meeting the long-term resident criteria will only be taxed on UK assets.  

• Changes to Trusts - Trusts will also be affected, with new rules aligning their tax treatment with the long-term resident status of the person who created the trust. This may bring more non-UK assets within the scope of inheritance tax, depending on the settlor's residency history.  

It seems like these changes are made to be in favour of the government. Long-term residents and people with assets outside the UK will be subject to more taxes, so if you find yourself in this group of people, you should seek professional help to prepare for these changes.

How much can I inherit from my parents tax-free in the UK?  

Everyone asks themselves the same question: "What do you pay inheritance tax on?" Do you have to pay taxes on the property you inherited from your parents? In the UK, the amount you can inherit from your parents tax-free depends on the value of their estate. Here's how it works:  

• Each person has a nil-rate band of £325,000. This means that any part of your parents' estate below this value is exempt from inheritance tax. If the estate is under this amount, there will be no inheritance tax to pay.  

• If you inherit the family home and are a direct descendant, you may be eligible for an additional residence nil-rate band of up to £175,000, which applies to the value of the home. This means you could inherit up to £500,000 tax-free per parent if the estate includes a property passed to you.  

• If your parents are married or in a civil partnership, there's no inheritance tax on the transfer of assets between them. Also, if one parent doesn't use their full nil-rate band, the portion that wasn't used can be transferred to the surviving civil partner or spouse. In the end, this can effectively double the tax-free allowance, potentially allowing up to £1 million to be passed to children tax-free.  

• If your parents gave you gifts during their lifetime, these might also be tax-free, depending on the amount and timing. It's important to know that gifts made more than seven years before their death are generally exempt from inheritance tax.  

Let's summarise things. You can inherit up to £500,000 tax-free from each parent if you inherit their home and meet the relevant conditions. In the case of your parents leaving one another everything, you'll be exempt from paying inheritance tax on an estate valued up to £1 million.  

Can I leave my house to my children without paying inheritance tax?  

It is possible to leave your house to your children without paying inheritance tax. However, this depends on the value of your estate and the specific exemptions and allowances available.  

We're not going to talk about RNRB and combined allowances for couples because we discussed that before. However, there are a couple more things you probably didn't know about, so let's take a look at those.  

• Estates exceeding the thresholds: If your estate is worth over £2 million, the RNRB is reduced by £1 for every £2 over this limit. However, estates whose value goes over this value by a significant amount may lose the benefit of the RNRB entirely.  

• Gifting your home: If you gift your home to your children during your lifetime and survive for seven years, it may also fall outside the scope of inheritance tax under the potentially exempt transfer rules. However, this can be complicated, especially if you continue living in the property, as "gifts with reservation of benefit" may still attract inheritance tax.

Can I avoid inheritance tax on my parents' property?  

When someone asks you what you pay inheritance tax on, you're hoping that your parents' property doesn't fall under that category, but we're afraid it's not that simple. In certain cases, it's possible to avoid paying inheritance tax on their property, but proper planning will be required.  

It all comes down to the value of the property. As we have already discussed, you can inherit something without paying those high taxes as long as the value of the estate isn't over £500,000. In fact, the value of the property can go up to £1 million since you can inherit £500,000 from each parent.  

There are also ways to inherit a house through a trust, but that doesn't necessarily guarantee that you'll be exempt from paying taxes. Avoiding taxes under UK law is challenging, especially if we're talking about a high-valued property, so you should prepare to pay some inheritance tax if you're in line to inherit something from your parents.  

Talking to a tax specialist or financial advisor will help you understand these laws, but if you plan on selling your house, contact one of our agents at The Property Buying Company, and we'll take the property off your hands in as little as 7 days!  

What is the property allowance for inheritance tax?  

The property allowance for inheritance tax in the UK is also known as the Residence Nil-Rate Band. It is an additional tax-free allowance created to help people pass their home to direct descendants, like children or grandchildren, without incurring inheritance tax. Here are the key details:  

• Amount of the allowance - The RNRB allows an additional £175,000 to be passed tax-free per person. This is on top of the standard nil-rate band of £325,000, meaning that an individual can potentially be passed on up to £500,000 without incurring inheritance tax.

• Eligibility - The RNRB applies only when the property is left to direct descendants, including biological children, stepchildren, adopted children, foster children, and grandchildren. In other cases, individuals will be eligible to inherit less without paying inheritance tax.  

• Transferring Allowances - Married couples or civil partners can transfer any unused RNRB to the surviving partner. This could allow a couple to pass on up to £1 million tax-free if their estate includes a qualifying residence.  

• Tapering for Large Estates - The RNRB is gradually reduced for estates valued over £2 million. It decreases by £1 for every £2 above this threshold, meaning estates that are significantly more expensive than £2 million may lose the benefit entirely.  

• Downsizing Protection - If the deceased person has sold or downsized their home after 8 July 2015, they may still qualify for the RNRB, provided the proceeds are left to direct descendants.  

The main purpose of the property allowance is to protect family homes from heavy taxation, but its application can be problematic, particularly for high-value estates. It is recommended to consult a tax advisor who will assist you with proper planning and full utilisation of these allowances.

Who is exempt from inheritance tax?  

Certain individuals and transfers are exempt from inheritance tax in the UK. Here’s the list of who and what is typically exempt: 

Sell your inherited estate with The Property Buying Company  

We understand that losing someone close to you can be difficult, but if you are left with an estate after their passing, we are here to assist you if you do not plan on keeping the property. We purchase houses in all conditions, regardless of their location, so if you are looking for a quick and fair cash offer, contact us, and we will make this process as easy and painless as possible.