What Is Included in Inheritance Tax? A Complete Guide to What Counts Toward Your Estate

Belgravia Capital
May 31
4 min read

Updated: Jun 2

When someone passes away, their estate may be subject to inheritance tax (IHT), a 40% charge on assets above certain thresholds.

But a question that causes frequent confusion is:

“What is included in inheritance tax?”

Many people assume that only property or cash is counted, but HMRC takes a much broader view.

Everything you own (and sometimes even things you’ve given away) could be included when calculating the total value of your estate.

At Belgravia Capital Wealth Management, we help individuals and families understand exactly how their estate is assessed, and how to legally reduce what counts toward inheritance tax.

In this guide, we’ll break down all the categories of assets that HMRC includes and explain how to plan more effectively around them.

What Does HMRC Include in an Estate for Inheritance Tax?

HMRC considers the value of your entire worldwide estate (if you are UK domiciled) when calculating IHT. This includes:

Property and Land

Your main home (including jointly owned property)
Second homes or holiday properties
Buy-to-let properties
Land owned personally or through partnerships

All are assessed at market value at the time of death.

Cash and Bank Accounts

Cash in current and savings accounts
Premium Bonds
ISAs (including Stocks & Shares ISAs, which are not IHT-free)
Foreign currency accounts

Even small balances are included in full.

Investments

Shares, unit trusts, investment funds
Corporate bonds and gilts
Business shares not qualifying for full relief
AIM-listed shares (with reduced IHT relief from April 2026)

These are valued at the market price on the date of death.

Pensions

Unused pension pots not in drawdown may be excluded under current rules
But from April 2027, most pension pots will be included in your estate
Any death-in-service benefits not written in trust may also be taxable

Life Insurance Policies

Life insurance is included in IHT if it is not written in trust
A policy in your name, paying into your estate, adds to its taxable value

Business Assets

Sole trader businesses
Partnerships
Private company shares
Machinery, stock, goodwill and intellectual property

These may qualify for Business Property Relief (BPR), either 50% or 100%, depending on the structure and ownership.

Personal Possessions (Chattels)

Jewellery
Art and antiques
Cars
Furniture
Collectibles (e.g. rare books, wine collections, watches)

Everything of value must be declared, and HMRC can challenge valuations.

Outstanding Loans Owed to You

If someone owes you money, that debt is included in your estate’s value
This includes loans to family members, friends, or businesses

Gifts Made Within 7 Years of Death

Any gift over the annual allowance (£3,000) made in the 7 years before death is included
These are added back into the estate and can attract taper relief if made more than 3 years before death

Trusts You Created or Benefit From

Some lifetime trusts may be included in your estate, especially bare trusts or interest in possession trusts
Discretionary trusts may face their own IHT charges every 10 years or when assets are distributed

What’s Not Included in Inheritance Tax?

While the list of included assets is long, there are some exceptions that are not usually included in the estate for IHT purposes:

Assets in a Trust (if structured correctly)

Assets in a discretionary trust may not be counted in your estate
Must be established and managed correctly to qualify

Life Insurance in Trust

If a policy is written in trust, the payout bypasses your estate and is not subject to IHT

Pension Death Benefits (until April 2027)

Most pension funds are currently outside the estate if the individual dies before age 75
This will change from 2027, so future planning is critical

Gifts Outside the 7-Year Window

Lifetime gifts made more than 7 years before death are not included
These are called Potentially Exempt Transfers (PETs) and become fully exempt after 7 years

What About Jointly Owned Assets when it comes to IHT?

Jointly owned assets are included in your estate proportionally:

50% of a jointly owned home with a spouse or partner is included (unless exempt)
Bank accounts, investments, and businesses held in joint names are assessed based on legal ownership

How Do Debts and Liabilities Affect IHT?

Any legitimate debts or liabilities can be deducted from the estate’s value. This includes:

Mortgages and loans
Credit card balances
Funeral expenses
Legal or professional fees incurred in estate administration

Reducing the estate value in this way may help bring it below the tax threshold.

What Is the Inheritance Tax Threshold in 2025?

You only pay IHT on the part of the estate that exceeds:

£325,000 (nil-rate band)
An additional £175,000 if passing your main residence to children or grandchildren (residence nil-rate band)
Up to £1 million combined for married couples or civil partners

Everything above this is taxed at 40%, unless reliefs or exemptions apply.

Real-World Example: What Was Included in the Estate for IHT?

When Mr. Jacobs passed away in 2024, his estate included:

Main home: £700,000
Investments: £300,000
Life insurance (not in trust): £200,000
Car and art collection: £50,000
ISA savings: £75,000
Gift to son (3 years ago): £100,000

Total estate for IHT: £1,425,000

With a total allowance of £1 million (from him and his late wife), the taxable estate was £425,000, leading to an IHT bill of £170,000.

Had the life insurance been placed in trust and the gift made earlier, the family could have saved over £100,000.

With further planning, this liability could have been mitigated to zero.

How Belgravia Capital Wealth Management Can Help Mitigate Your Inheritance Tax Burden

We offer full inheritance tax reviews to help you:

Identify which assets are exposed to IHT
Re-structure your estate to reduce its taxable value
Move investments into more tax-efficient vehicles
Set up trusts and insurance to shield assets from IHT
Develop long-term gifting strategies
Ensure pension death benefits are structured correctly before 2027

Our expert planning helps you keep more of your estate in your family, not with HMRC.

Conclusion: What Is Included in Inheritance Tax?

Almost everything - unless you plan ahead.

From property and cash to gifts and insurance, HMRC takes a wide-angle view of what counts toward inheritance tax.

The good news? With the right strategies, you can significantly reduce what’s included, and what’s taxed.

Start today and take control of your legacy.