Are Inheritance Tax and Estate Tax the Same in the UK? Clearing Up the Confusion

Belgravia Capital
May 31
3 min read

If you've been researching how to plan your estate, you may have come across both the terms "inheritance tax" and "estate tax."

But are they the same thing?

Do both apply in the UK?

And how do they affect your family’s financial future?

In this article, Belgravia Capital Wealth Management breaks down the difference between these terms, clarifies how the UK system works, and offers practical steps to help you plan efficiently.

Inheritance Tax vs Estate Tax: What’s the Difference?

At first glance, the terms seem interchangeable - and they often are, depending on the country.

But in reality, inheritance tax and estate tax are not the same, and the difference lies in:

Who pays the tax
Where the tax system is applied

Inheritance Tax:

Levied on the beneficiary (person receiving the inheritance).
The tax rate may vary based on the beneficiary's relationship to the deceased.
Common in countries like the UK and Ireland.

Estate Tax:

Levied on the estate itself before distribution.
The tax is calculated on the total value of the estate.
Found primarily in the United States.

Which Does the UK Have – Inheritance Tax or Estate Tax?

The UK system is commonly referred to as Inheritance Tax (IHT) — but functionally, it behaves more like an estate tax.

Why? Because:

The tax is paid from the estate, not by the person receiving the inheritance.
The executor or administrator handles the tax payment using the estate’s assets.
The amount is calculated based on the overall estate value, not the recipient’s personal circumstances (with a few exceptions).

Why the Confusion Exists

Much of the confusion stems from global terminology.

In the United States, both estate tax and inheritance tax exist - and they’re completely separate:

Estate tax is a federal tax paid by the estate.
Inheritance tax is levied by certain individual states and paid by beneficiaries.

In the UK, there is only one system, and it applies nationwide.

How UK Inheritance Tax Works

As of 2025, the main rules are as follows:

Each person has a £325,000 nil-rate band.
If you leave your main residence to a direct descendant, an extra £175,000 residence nil-rate band may apply.
Anything above the threshold is taxed at 40%.
Married couples can combine allowances, allowing them to pass on up to £1 million tax-free.

Key Points About the UK IHT System

It is the estate that pays the tax - not the individuals inheriting the assets.
Gifts made within 7 years of death can also be subject to tax.
Exemptions exist for spouses, charities, and certain business/farm assets.
Assets must be valued at the date of death, and the tax paid within 6 months of death.

Is There Ever a Situation Where the Beneficiary Pays in the UK?

Yes - although it’s rare. Beneficiaries may become liable if:

They received gifts within 7 years of the deceased’s death and the estate can't cover the IHT bill.
A will specifically states that beneficiaries must cover the tax from their share.

But in most cases, the estate covers all tax obligations before distributing assets.

Why Does the UK Call It “Inheritance Tax”?

Historically, IHT evolved from earlier duties on successions and legacies.

Over time, the term "Inheritance Tax" stuck - even as the responsibility to pay it shifted from individuals to estates.

So while the name persists, the modern structure makes it functionally similar to a US-style estate tax.

Do You Need to Worry About Both Taxes?

No - if you are UK domiciled and your estate is in the UK, you only need to consider UK Inheritance Tax.

However, if you own assets abroad or are non-domiciled, cross-border tax rules may apply, and you could face additional reporting obligations in other jurisdictions.

In such cases, specialist tax planning is essential.

How Belgravia Capital Wealth Management Can Help

Whether you're preparing your will, managing a complex estate, or simply want clarity, we’re here to help you:

Understand your IHT liability
Structure your estate for maximum tax efficiency
Reduce your estate’s value through strategic gifting or trusts
Navigate international tax exposure (if applicable)

With Belgravia Capital, you gain access to expert advice tailored to your family’s unique circumstances.

So, areInheritance Tax and Estate Tax the Same in the UK?

Technically, no - but practically speaking, the UK’s Inheritance Tax system operates much like an estate tax.

Understanding this distinction helps avoid confusion and better informs your planning strategy.

Want clarity on your exposure or help reducing your potential IHT bill?