Inheritance Tax FAQs: How Inheritance Tax Works
Inheritance Tax is often misunderstood and can become a major concern when property is involved. This FAQs guide explains how Inheritance Tax works in the UK who pays it how inherited homes are treated and what options are available when tax bills and probate deadlines create pressure.
Inheritance Tax FAQs: Everything You Need to Know About Inheritance Tax in the UK
Inheritance Tax (IHT) is often one of the most misunderstood aspects of financial planning in the UK.
For many families, it only becomes a concern following the death of a loved one at a time when emotions are already high, and decisions feel overwhelming.
Whether you are planning your estate, acting as an executor, or have inherited a property, understanding how Inheritance Tax works can help you avoid costly mistakes, reduce stress, and make informed decisions about the next steps.
This comprehensive FAQ guide answers the most common questions about Inheritance Tax, how it applies to property, and what options may be available if you need to sell an inherited home.
What is Inheritance Tax?
Inheritance Tax is a tax charged on the estate of someone who has died. An estate includes everything they owned, such as property, savings, investments, personal possessions, and sometimes gifts made during their lifetime.
In the UK, Inheritance Tax is only payable if the total value of the estate exceeds certain thresholds. If the estate falls below these thresholds, no Inheritance Tax is due.
How Much is Inheritance Tax in the UK?
The standard rate of Inheritance Tax is 40% charged on the portion of the estate that exceeds the available tax-free allowances.
In some cases, a reduced rate of 36% may apply if at least 10% of the net estate is left to charity.
What is the Inheritance Tax Threshold?
The basic Inheritance Tax threshold, known as the nil-rate band, is £325,000.
This means that the first £325,000 of an estate is usually free from Inheritance Tax.
Anything above this amount may be taxed at 40%, depending on the circumstances and available allowances.
What is the Residence nil-rate Band?
The residence nil-rate band (RNRB) is an additional allowance that applies when a main residence is passed on to direct descendants, such as children or grandchildren.
This allowance is currently up to £175,000, meaning that in some cases an individual can pass on up to £500,000 tax-free (£325,000 + £175,000).
For married couples or civil partners, unused allowances can usually be transferred, allowing estates worth up to £1 million to be passed on without Inheritance Tax.
Who Qualifies as a Direct Descendant?
Direct descendants typically include:
- Children, including adopted and stepchildren
- Grandchildren
- Great-grandchildren
Nieces, nephews, siblings, and other relatives do not usually qualify for the residence nil-rate band.
Does Everyone Have to Pay Inheritance Tax?
No. Many estates do not pay any Inheritance Tax. Common reasons include:
- The estate value is below the nil-rate band
- Assets are left to a spouse or civil partner
- Assets are left to charity
- Allowances from a deceased spouse or civil partner are available
Despite this, Inheritance Tax planning is still important, particularly where property values have increased significantly over time.
Do Married Couples pay Inheritance Tax?
Transfers between spouses or civil partners are generally exempt from Inheritance Tax regardless of value.
In addition, any unused nil-rate band and residence nil-rate band can usually be transferred to the surviving partner’s estate, potentially doubling the tax-free allowances available.
What Happens if Someone Inherits a House?
If a property is inherited, its value is included as part of the estate for Inheritance Tax purposes. The property must be professionally valued as at the date of death.
Even if the property is not sold, Inheritance Tax may still be due immediately based on its value.
Do you have to pay Inheritance Tax Before Probate?
Yes, inheritance tax must usually be paid before probate is granted.
This can be challenging, particularly when the estate is largely made up of property, and little cash is available.
In some cases, property tax can be paid in instalments over 10 years, but interest may apply.
What if there isn’t Enough Money in the Estate to pay the tax?
This is a common issue, especially where a valuable property is inherited, but there are limited liquid assets.
Options may include:
- Using savings from the estate
- Taking out a short-term loan
- Paying Inheritance Tax in instalments
- Selling the inherited property
For many beneficiaries, selling the property is the most practical solution.
Can you Sell a House Before Probate?
In most cases, contracts can be exchanged before probate, but completion usually cannot take place until probate is granted.
Specialist property buyers, such as We Buy Any House, are often more flexible and experienced in handling probate sales, helping reduce delays.
How Long do you Have to pay Inheritance Tax?
Inheritance Tax is usually due within six months of the end of the month in which the death occurred. If payment is late, interest will be charged.
This deadline often adds pressure on executors and beneficiaries to act quickly.
What Happens if Inheritance Tax is not Paid?
If Inheritance Tax is not paid on time:
- Interest continues to accrue
- HMRC may take enforcement action
- Probate may be delayed
- Executors can be held personally liable
Seeking professional advice early is strongly recommended.
Do Gifts Affect Inheritance Tax?
Yes, gifts made during the deceased’s lifetime may affect the Inheritance Tax calculation.
Generally:
- Gifts made more than seven years before death are usually exempt
- Gifts made within seven years may be taxed on a sliding scale
- Certain annual and small gift allowances apply
This is known as the seven-year rule.
Are There Exemptions From Inheritance Tax?
Common exemptions include:
- Transfers to a spouse or civil partner
- Gifts to charities
- Certain gifts for weddings
- Small gifts up to £250 per person
- Annual gift allowance of £3,000
Understanding exemptions can significantly reduce the tax due.
How is an Inherited Property Valued?
HMRC requires the property to be valued at market value at the date of death. This is not necessarily the same as the eventual sale price.
If HMRC believes the valuation is inaccurate, they may challenge it and request further evidence.
What if the Property Sells for Less Than the Probate Valuation?
If a property is sold for less than the probate value, it may be possible to claim Inheritance Tax relief on the loss, reducing the amount of tax payable.
Strict time limits apply, so professional advice is important.
Is Capital Gains Tax Payable on Inherited Property?
Capital Gains Tax (CGT) is not payable at the time of inheritance. However, if the property is later sold for more than its probate value, CGT may apply.
If the property is sold shortly after inheritance, any gain is often minimal.
Should you Keep or Sell an Inherited House?
This depends on several factors, including:
- Ongoing costs such as maintenance, insurance, and council tax
- Emotional attachment
- Rental potential and tax implications
- Inheritance Tax and probate expenses
- Market conditions
For many people, selling the property simplifies the process and releases funds quickly.
How Long Does Probate Usually Take?
Probate can take anywhere from a few months to over a year, depending on the estate’s complexity and whether any issues arise.
Delays can increase financial pressure, particularly where Inheritance Tax is due.
Can Inheritance Tax be Reduced Legally?
Yes, with proper planning. Common strategies include:
- Making use of allowances and exemptions
- Passing property to direct descendants
- Leaving assets to charity
- Lifetime gifting
- Professional estate planning
However, once someone has passed away, options become more limited.
What are the Responsibilities of an Executor?
Executors are responsible for:
- Valuing the estate
- Reporting to HMRC
- Paying Inheritance Tax
- Applying for probate
- Distributing assets
Executors can be personally liable for mistakes, making accuracy and timeliness essential.
When is Selling an Inherited Property the Best Option?
Selling may be the best option when:
- Inheritance Tax is due, and funds are needed quickly
- There are multiple beneficiaries
- The property is empty or in poor condition
- Ongoing costs are becoming a burden
- Executors want to avoid long delays
In these situations, speed and certainty are often more important than achieving the highest possible market price.
Inheritance Tax, Property, and Making the Right Decision
Inheritance Tax can feel complex and overwhelming, particularly when property is involved, and deadlines are tight. While many estates will not pay Inheritance Tax, those that do often face difficult decisions around probate valuations and funding tax payments.
For beneficiaries who inherit a property and need to release funds quickly, selling can provide clarity and peace of mind at a challenging time.
If you have inherited a house and want to avoid long delays, ongoing costs, and uncertainty, We Buy Any House offers a fast, straightforward solution. With no estate agent fees, no chains, and flexible completion dates, you can sell an inherited property quickly and securely, even during probate.
When certainty matters most, choosing a specialist property buyer can help you move forward with confidence.