Will your Inheritance be Taxable in the UK? Understanding What You’ll Really Pay

Belgravia Capital
May 31
3 min read

The question "Are inheritances taxable in the UK?" is one of the most common – and misunderstood – among those planning their estate or receiving a legacy.

With property prices rising and tax rules constantly evolving, it's vital to understand when and how inheritance becomes taxable.

In this blog, Paul Cliffe - founder of Belgravia Capital Wealth Management breaks down the UK inheritance tax rules, dispel common myths, and show you how to reduce your tax liability legally and effectively.

Is Inheritance Tax Always Payable?

Inheritances can be taxable, but not always. Whether tax is due depends on:

The value of the deceased's estate.
The relationship between the deceased and the beneficiary.
The use of available tax reliefs and exemptions.

Inheritance Tax (IHT) in the UK is charged on the estate of someone who has died, not directly on the person who receives the inheritance.

However, in certain circumstances, beneficiaries may end up paying or covering the liability – for example, where a gift was made within seven years of death.

The Inheritance Tax Threshold (Nil-Rate Band)

In 2025, the standard nil-rate band (NRB) remains at £325,000.

This means no tax is due on the first £325,000 of the estate.

If the estate exceeds this threshold, IHT is typically charged at 40% on the value above the limit.

However, there are ways to reduce this liability, including the use of the Residence Nil-Rate Band (RNRB) and spousal exemptions.

Who Pays Inheritance Tax?

Usually, the executor of the will or administrator of the estate arranges payment of IHT using estate funds before assets are distributed to beneficiaries.

In rare cases - for example, where a gift was made within seven years of death - the recipient of the gift may be liable.

So while beneficiaries don’t typically pay IHT directly, the value of their inheritance may be reduced by tax liabilities.

Exemptions That Make Inheritances Non-Taxable

1. Spouse and Civil Partner Exemption:

Anything left to a spouse or civil partner who lives in the UK is entirely free from Inheritance Tax.

2. Residence Nil-Rate Band (RNRB):

If a home is left to a direct descendant (child, grandchild, etc.), an additional allowance of up to £175,000 may be available, increasing the total tax-free threshold to £500,000.

3. Charity Exemption:

Gifts to UK-registered charities are exempt from IHT. If 10% or more of the estate is left to charity, the IHT rate on the remaining taxable estate may be reduced to 36%.

4. Small Gifts and Annual Gift Exemptions:

You can gift up to £3,000 per year free of IHT, and additional small gifts of £250 per person.

Common Inheritance Scenarios and Their Tax Implications

Scenario 1: Inheriting from a Spouse

No IHT is due. Additionally, the unused portion of their nil-rate band can be transferred to the surviving partner, potentially doubling the allowance to £650,000 (or £1 million with RNRB).

Scenario 2: Inheriting from a Parent

IHT may apply if the estate exceeds the nil-rate band + residence nil-rate band (i.e. £500,000). Estates under this amount pay no tax.

Scenario 3: Inheriting a Business or Farm

Business Property Relief (BPR) and Agricultural Property Relief (APR) can reduce the value of business/farm assets for IHT purposes — in some cases by up to 100%.

Is There Income Tax on Inheritance?

Generally, no income tax is due on the inheritance itself. However:

You may pay income tax on interest or dividends generated by inherited investments.
You’ll owe capital gains tax if you sell inherited assets (e.g. shares or property) at a profit.

So while receiving an inheritance isn't typically considered income, it can create future tax obligations depending on what you do with the assets.

How to Avoid or Reduce Inheritance Tax

With proactive planning, many families can legally reduce or eliminate their IHT bill.

Common strategies include:

Writing a tax-efficient will
Making use of exemptions and gifting allowances
Using life insurance written in trust
Transferring unused nil-rate bands between spouses
Setting up trusts for wealth preservation

The key is to plan early and seek professional advice.

Are You Concerned About Inheritance Tax?

At Belgravia Capital Wealth Management, we work with clients to structure their estates efficiently and ensure their loved ones retain more of what they've built.

We provide:

Comprehensive estate planning
IHT calculations and scenario modelling
Strategic use of trusts and insurance
Intergenerational wealth planning

So, will your inheritance be taxable?

The answer is: sometimes - but with the right planning, many people can reduce or even eliminate their liability.

Want to know exactly how much IHT your estate might owe or how to protect your inheritance?

Speak to one of our expert advisers today.