Inheritance Tax Explained in Simple Terms
Need inheritance tax explained simply? This guide breaks down what IHT is, how it works, and how much your estate might owe. Learn how to reduce your bill with reliefs and exemptions. Based in Leeds, our friendly solicitors are here to help you make sense of it all.
- Understand IHT rules in the UK
- See how tax is calculated
- Plan using property thresholds
- Reduce tax if you're married
- Use gifting and reliefs smartly
- Get local help from Leeds experts
What is Inheritance Tax and Who Pays It?
If you're feeling overwhelmed by inheritance tax, you're not alone. Many people don’t realise that not every estate in the UK pays inheritance tax (IHT). It all depends on how much you leave behind and who you leave it to.
When someone dies, HMRC may charge 40% tax on the estate, but only on the value above a certain threshold. This is where it gets confusing. We're here to make it simple.
We help families across Leeds and the UK understand what inheritance tax means for them – in plain English
Monika Volsing, Head of Private Client at Winston Solicitors
Quick Fact: How Many Estates Actually Pay IHT?
According to HMRC, fewer than 4% of estates paid inheritance tax in 2022/23. But those that did often faced unexpected costs due to poor planning or lack of advice.
From April 2027, pension pots become taxable for IHT. This will pull a lot more estates into taxable territory, so this statistic is likely to rise significantly. Meaning that thousands more families having to pay inheritance tax when a loved one dies.
Winston Solicitors gave us peace of mind during a stressful time. Their inheritance advice was a lifeline.
Client, Leeds
How Is Inheritance Tax Calculated in the UK?
To work out if inheritance tax is due, your executors must:
- Add up everything you own - property, savings, pensions, investments, business shares, life insurance payouts.
- Subtract any debts - like mortgages, loans, care fees.
- Apply the tax-free threshold (called the nil rate band).
Current Nil Rate Band (2025)
- You can leave £325,000 tax-free. This is called the Nil Rate Band (NRB).
- Anything above that may be taxed at 40%.
- If your estate is under £325,000, there’s usually no IHT to pay.
Married or in a Civil Partnership?
You may be able to double the tax-free allowance to £650,000.
That’s because:
- Anything left to your spouse or civil partner is IHT-free
- You can also pass on your unused £325,000 allowance to them
What If You’re Leaving a Home to Children or Grandchildren?
You may qualify for the Residence Nil Rate Band (RNRB), which is an extra £175,000 tax-free if you leave your main home to direct descendants.
So, for many couples:
- NRB = £325,000 x 2 = £650,000
- RNRB = £175,000 x 2 = £350,000
- Total tax-free estate = £1 million
Can You Reduce Inheritance Tax with Gifting?
Yes, with careful planning, you can give away parts of your estate during your lifetime. But there are rules.
The 7-Year Rule
- If you give a large gift and die within 7 years, it may still be taxed
- After 7 years, gifts are usually tax-free
Who Pays Tax on a Gift?
- If tax is due, the person receiving the gift may have to pay it
Tip: You can take out life insurance to cover the potential bill
IHT-Free Gifts You Can Make Each Year
- £3,000 annual gift allowance (can carry over 1 year)
- Small gifts of £250 to multiple people
- Wedding gifts (£5,000 from parents, £2,500 from grandparents)
- Regular gifts from income (if it doesn’t affect your lifestyle)
- Gifts to charities or political parties – always tax-free
IHT Reliefs That Could Save Thousands
Some assets get special tax reliefs. These include:
Charity Relief
- Leave 10% of your estate to charity, and the rest may be taxed at 36% instead of 40%
Agricultural Property Relief (APR)
- Up to 100% IHT relief on working farmland
Business Relief (BR)
- Up to 100% tax relief on a business or qualifying shares
Heritage & Woodland Relief
- Reliefs apply to historic buildings, artworks, and woodlands, if managed properly
These reliefs are complex. We’ll help you check what applies to your estate.
Step by Step Guide on How to Plan for Inheritance Tax
Reducing Inheritance Tax Explained – A Simple Guide
1. Calculate your estate value
Add up your property, cash, pensions, and investments
2. Check your allowances
Use your NRB, RNRB, and spouse’s unused allowance
3. Use gifting rules
Make gifts early – ideally 7+ years before death
4. Get expert help
A solicitor can advise on reliefs, trusts, and legal documents
5. Make a valid Will
This helps control who benefits – and how tax is applied
Ready to Talk? We’re Here for You
We understand inheritance tax can feel daunting, especially during a difficult time. That’s why our Leeds-based solicitors take the time to explain everything clearly, with no pressure and no jargon.
I would highly recommend Winston Solicitors to help with your personal needs. 100% very professional, very helpful and considerate
Client, Gipton
To speak to a member of our Private Client team to have Inheritance Tax explained, call 0113 320 5000 or leave a message.
Inheritance tax (IHT) is a tax on the estate (property, money and belongings) of someone who has died. It’s usually only paid if the estate is worth over £325,000, and only on the value above that amount.
IHT is calculated by adding up the total value of your estate and subtracting any debts. If the estate is above the tax-free threshold (£325,000), the rest may be taxed at 40%. Certain reliefs and exemptions can reduce this.
Usually, the estate pays the inheritance tax before anything is passed on to beneficiaries. But if you give large gifts during your lifetime and pass away within 7 years, the person who received the gift may be responsible.
Yes, with proper planning. Using your full allowances, making tax-free gifts, leaving money to charity, and using business or property reliefs can help reduce or even avoid IHT altogether. Speak to a solicitor to plan effectively.
Yes. If you're married or in a civil partnership, anything you leave to your spouse is free of IHT. You can also combine your tax-free allowances, meaning up to £1 million of your joint estate could be passed on tax-free.
If you give someone a gift and die within 7 years, that gift may still be taxed as part of your estate. After 7 years, the gift is usually tax-free. This is why early gifting is often recommended.
You don’t have to, but it helps. A solicitor can make sure your will is valid, help reduce tax, and guide your family through the process. The Private Client team at Winston Solicitors in Leeds specialises in clear, compassionate support.
