Inheritance tax is a tax on the estate (the property, money, and possessions) of someone who has died. It is paid when a persons estate is worth more than £325,000 when they die. The standard Inheritance Tax rate is 40%, and it is only charged on the part of the estate that is above the threshold. If the value of the estate is below the £325,000 threshold, there is normally no tax to be paid. However, if the value of the estate is above the threshold, the part of the estate above it might be liable for tax at the rate of 40%.

There are some exemptions and reliefs that can reduce the value of the estate. For example, if you leave everything above the threshold to your spouse or civil partner, or if you leave everything above the threshold to an exempt beneficiary, such as a charity or a community amateur sports club, there is no Inheritance Tax to pay. If you give away your home to your children or grandchildren, your threshold can increase to £500,000.

Inheritance Tax must be paid by the end of the sixth month after the person’s death. If it’s not paid by then, HMRC will start charging interest. The executors can choose to pay the tax on certain assets, such as property, by instalments over ten years.

It is worth noting that only 1 in 20 estates in the UK pay Inheritance Tax. Most estates in the UK are not liable to Inheritance Tax because their value, including gifts made in the seven years prior to death, is less than the nil rate band.

In summary, Inheritance Tax is a tax on the estate of someone who has died, and it is only charged if the estate is worth more than £325,000. The standard Inheritance Tax rate is 40%, and there are some exemptions and reliefs that can reduce the value of the estate.