Are All Inheritances Taxable? What Every UK Family Should Know About IHT Rules

Belgravia Capital
6 days ago
4 min read

Updated: 4 days ago

One of the most common questions we hear from clients is:

“Are all inheritances taxable?”

It’s an understandable concern. The thought of the government taking 40% of what your loved ones leave behind - or what you hope to pass on - can be alarming.

But here’s the truth:

No, not all inheritances are taxable. In fact, many beneficiaries in the UK receive inheritances without paying a single penny in tax.

That said, as house prices rise and thresholds remain frozen, more estates are crossing into taxable territory and understanding the rules is crucial if you want to protect your family’s wealth.

In this guide, Belgravia Capital Wealth Management explains which inheritances are taxable, which aren’t, and how you can structure your estate to minimise your exposure to inheritance tax (IHT).

What Is Inheritance Tax — and Who Pays It?

Inheritance tax is not a tax paid by the person receiving the inheritance. Instead, it is paid from the deceased’s estate before the assets are passed on.

The executor or administrator is responsible for:

Calculating the value of the estate
Reporting it to HMRC
Paying any tax due before distributions are made

So when we talk about taxable inheritances, we’re really talking about whether the estate is large enough to attract tax, and which parts of it are subject to that tax.

What Is the Inheritance Tax Threshold in 2025?

As of 2025, inheritance tax applies at 40% on the portion of the estate above certain allowances:

£325,000 nil-rate band (NRB): available to every individual
£175,000 residence nil-rate band (RNRB): available when a main home is passed to direct descendants
Transferable allowances between spouses/civil partners: allowing a couple to pass on up to £1 million tax-free

Any value above these combined thresholds is taxed at 40%.

So, Are All Inheritances Taxable?

No. The vast majority of inheritances do not trigger tax because:

The estate falls below the £325,000 (or £1 million combined) threshold
The inheritance is left to a spouse or civil partner
The inheritance is left to a tax-exempt organisation such as a charity
The estate includes assets that qualify for Business or Agricultural Relief
The deceased made qualifying lifetime gifts or planned their estate using trusts and exemptions

In most cases, you will not pay tax as a beneficiary, but the estate may.

Who Is Exempt from Paying Inheritance Tax?

Spouses and Civil Partners

Anything left to a UK-domiciled spouse or civil partner is free from IHT, regardless of value. Additionally, any unused allowance can be passed on, doubling the survivor’s threshold.

Charities

Bequests to registered UK charities are tax-free. If you leave at least 10% of your estate to charity, the overall tax rate on the rest may reduce from 40% to 36%.

Direct Descendants and the Family Home

If you leave your main home to children or grandchildren, the residence nil-rate band applies, increasing the total tax-free threshold.

Smaller Estates

Estates valued under the thresholds are not taxable, and beneficiaries receive their inheritance in full.

The Monarch

The king or queen of England doesn’t have to pay IHT. Doesn’t seem fair, does it?

What Types of Inheritance Are Typically Taxed?

Cash savings and investments (ISAs become taxable on death)
Properties not left to a spouse or direct descendant
Life insurance policies not written in trust
Businesses or shares not qualifying for relief
Second homes and buy-to-let properties
Pensions (from April 2027), if not structured correctly

If the total value of these assets exceeds the available allowance, IHT will apply, typically paid by the estate, but potentially impacting what the beneficiary receives.

Common Misconceptions About Inheritance Tax

“If I inherit something, I have to pay tax on it.”

Not true - tax is usually paid by the estate before you receive anything.

“If my parents’ house is worth £600,000, we’ll pay tax.”

Only if the total estate exceeds the £1 million combined threshold and the house is not left to direct descendants.

“A will automatically avoids inheritance tax.”

A will ensures your wishes are followed, but does not eliminate tax. Proper planning is needed to minimise the liability.

“Only the very wealthy pay inheritance tax.”

Increasingly untrue. With frozen allowances and rising property prices, many middle-class families now face IHT bills, especially in London and the South East.

How to Ensure Your Inheritance Isn’t Taxed Unnecessarily

Gift Assets During Your Lifetime

Use the 7-year rule to remove gifts from your estate. Gifts are tax-free if you survive seven years after giving.

Use Your Annual Gift Allowances

£3,000 annual exemption
£250 small gift exemption per person
Wedding gift exemptions (£5,000 for children, £2,500 for grandchildren)

Create a Trust

Move assets out of your estate while maintaining control and reducing tax exposure.

Use Life Insurance

A whole-of-life policy written in trust can provide tax-free funds to pay any inheritance tax bill without impacting your estate’s liquidity.

Maximise Spouse and Residence Allowances

Structure your will and asset ownership to fully utilise both partners’ exemptions.

Real-World Example: Inheritance That Wasn’t Taxed

Emma inherited £450,000 from her mother in 2024, which included:

A £300,000 property (her mother’s main home)
£100,000 in savings
£50,000 in personal possessions

Her mother’s estate was below the £500,000 threshold because:

She was a widow and could use her late husband’s allowances
The home passed to a direct descendant
No other taxable assets existed

Result: No inheritance tax was due. Emma received everything tax-free.

How Belgravia Capital Wealth Management Can Help with IHT Planning

We help individuals and families:

Understand which parts of their estate are taxable
Structure wills and succession plans tax-efficiently
Set up trusts and insurance to mitigate tax
Use gifting strategies to reduce estate size
Identify reliefs and exemptions they may have overlooked

Whether you’re expecting to receive an inheritance or planning to leave one, our experts provide clear, personalised advice based on your circumstances.

Conclusion: Are All Inheritances Taxable?

No - far from it.

Many inheritances are received completely tax-free thanks to allowances, exemptions, and good planning.

But as the tax net tightens and thresholds remain frozen, more estates are becoming taxable each year.

If you want to protect your wealth or ensure your inheritance arrives in full, planning is not just optional, it’s essential.