How much is inheritance tax in the UK? This guide explains when UK inheritance law applies and how much UK inheritance tax you have to pay, plus how to write a UK will to protect your assets.
You need to find out if your estate will be dealt with under UK inheritance law or the law of your home country, plus how much of your estate could be taxed after applying the UK inheritance tax threshold. In some cases, it may be beneficial to write a last will and testament in the UK to protect your assets in the event of your death, although conditions apply when writing UK wills.
This guide explains the ins and outs of UK inheritance law, plus UK inheritance tax rates and exemptions. It also explains the process of drawing up a will in the UK and the conditions for making it legal, which should be considered whether or not your are planning your UK retirement.
Learn about the implications of your UK inheritance:
- Inheritance law in the UK
- Law of succession in the UK
- UK inheritance law regarding marriage
- Unclaimed UK inheritance
- Inheritance tax in the UK
- How much is inheritance tax in the UK?
- Inheritance tax threshold
- Gift tax in the UK
- Last will and testament in the UK
- Conditions for writing UK wills
- Registering your UK will
- What is the grant of probate in the UK?
- UK inheritance authorities
Inheritance law in the UK applies to all official residents, whether national or from overseas, on all of their worldwide moveable assets. If you are a non-resident who owns UK property, UK inheritance law will also apply to some of your estate.
The UK is one of three countries (along with Denmark and Ireland) that opted out of changes to EU inheritance regulations in 2015, which give citizens living abroad in the EU the choice to have their estate dealt with according to the laws of their home country or country of residence. This means that UK citizens living in other EU countries covered by these regulations will have this choice.
Inheritance laws in the UK vary in different areas. In England and Wales, there is no forced heirship and people are free to leave their property to whoever they wish by making a last will and testament in the UK.
However, in Scotland, a surviving spouse and children have a statutory claim to parts of the estate. If there are both spouse and children, both parties are entitled to a third each (one-third split equally between children if more than one) of the net moveable assets (everything excluding property and land). If there is only a spouse or children, they are entitled to 50% of net moveable assets.
If a resident in the UK dies without leaving a will, then UK intestacy law determines how their estate is distributed. Again, this is different in England and Wales than it is in Scotland.
Intestacy rules in England and Wales
You can check your UK inheritance rights on the UK government website.
|If there is a surviving spouse/civil partner and children||The spouse/partner receives the first £250,000 of the estate and the remainder is split between 50% into a trust to provide lifetime income for spouse/partner and then capital to children equally following the death of the spouse/partner; and 50% divided equally between children (held in a trust until they reach 18 if younger). If any children are deceased, their share goes to grandchildren if any.|
|If there is a surviving spouse/partner but no children||The spouse/partner gets the first £450,000 and the remainder is split 50/50 between the spouse/partner and surviving parents. If there are no surviving parents, then the share goes to siblings (or nieces/nephews). If there are none from these groups, the spouse/partner inherits the whole estate.|
|If there is no surviving spouse/partner||The whole estate is distributed between the children or grandchildren. If there are no children or grandchildren, the estate passes to the following groups in descending order: parents, siblings (or nephews/nieces if deceased), half-siblings (or their children if deceased), grandparents, uncles/aunts (or cousins if deceased), half-brothers and half-sisters of parents (or their children if deceased).|
Intestacy rules in Scotland
Intestacy rules in Scotland are more complex, outlined in the table below.
|Surviving family members||Spouse/partner and children||Spouse/partner but no children||Children but no spouse/partner||Neither spouse/partner nor children|
|Usufruct (lifetime use) of family home||Spouse/partner up to a value of £473,000||Spouse/partner up to value of £473,000|
|Furniture||Spouse/partner up to value of £29,000||Spouse/partner up to value of £29,000|
|Finances||£50,000 to spouse/partner||£89,000 to spouse/partner|
|Legal rights||One-third of net moveable estate to spouse/partner, one-third to children||50% of net moveable estate to spouse/partner|
|Remainder of estate||To children in equal shares (or grandchildren if deceased)||50% to parents and 50% to siblings, or 100% to either group if no survivors from other group. If no survivors from either group, 100% to spouse/partner||To children in equal shares (or grandchildren if deceased)||50% to parents and 50% to siblings, or 100% to either group if no survivors from other group. If none from either group, then passed down in descending order to: aunts/uncles, grandparents, great aunts/uncles, more distant relatives|
UK inheritance law regarding married couples is different than in many European countries. Under UK inheritance law, marriage doesn’t result in jointly-owned matrimonial or community property unless property is specifically placed under joint ownership by the couple. As there is no ‘forced heirship’ in England and Wales, property can freely be given away during a person’s lifetime.
Under UK property law, gifts can be made via trusts. This means there is a distinction between the legal owner of a property (the trustee) and the beneficial owner (the recipient). Trusts cannot be registered at the land registry. Information on updating property records with the UK land registry when someone dies can be found on the UK government website.
If an UK inheritance is unclaimed or rejected by all beneficiaries, then the estate is passed to the UK government.
Inheritance tax in the UK is payable on the worldwide assets of someone who was a UK resident and on UK property of someone who lived overseas. UK inheritance tax is payable on the net value of the estate, plus on any lifetime gifts made in the last seven years of the deceased’s life. Inheritance tax in the UK is paid by the executor of the will or by the person administering the estate if there is no will and testament.
You can reduce your UK inheritance tax by applying the relevant allowances and exemptions:
- £325,000 tax-free threshold on the whole estate (thus, 40% tax applies only to the portion of the estate above this amount).
- Spouses/civil partners, charities, and amateur sports clubs are exempt from UK inheritance tax.
- Gifts given during the lifetime more than seven years before death are exempt from UK inheritance tax.
- 50–100% tax relief is offered on some business assets.
- The UK inheritance tax rate on the estate can be reduced to 36% if at least 10% of the estate is left to charity. You can find a list of charities and an inheritance tax calculator.
- Since April 2017, if the main home is left to children (including adopted, foster, and stepchildren) or grandchildren, there will be a tax-free threshold of up to £2 million on this property.
The UK inheritance tax rate is a flat rate of 40% on the whole estate. The UK inheritance tax rate for foreigners is the same as for nationals, as are the allowances and exemptions listed above.
The estate is usually taxed before it is handed down (unless there aren’t sufficient funds), typically meaning beneficiaries don’t pay UK inheritance tax from their own savings. However, they may be liable for other taxes (e.g., income tax or capital gains tax) if they make money from earning income or selling assets they have inherited.
Information on how to pay your UK inheritance tax bill can be found on the UK government website.
The UK also has tax treaties with several countries to avoid double taxation.
The UK government provides a number of forms relating to inheritance tax claims, including: IHT 400 and IHT 401 for non-residents. If inheritance tax isn’t owed (for example, the value is less than the UK inheritance threshold of £325,000), use Form IHT 205. The British government maintains a full list of forms regarding inheritance tax.
The general inheritance tax threshold (also referred to as residence nil rate band or RNRB) allows properties up to the value of £325,000 to be inheritance-tax free. However, the threshold can increase in certain situations, for example, if you give your home to your children or grandchildren the threshold increases to £425,000.
If the inheritance doesn’t meet the full threshold value, any unused threshold can be transferred to a spouse or partner’s threshold for when they die, allowing a maximum threshold of £850,000.
In addition, since 6 April 2017, certain inheritance claims may be eligible for an additional inheritance tax threshold, with one main condition being that a share of the estate must be left to a direct descendent (i.e., child or grandchild).
The additional maximum threshold (on top of £325,000) will depend on the year of death:
- £150,000 in 2019 to 2020
- £175,000 in 2020 to 2021
Gifts made during the last seven years of life are subject to UK inheritance, although any gifts made three to seven years before death are taxed at a reduced rate, starting at 8% if made between six to seven years before death and increasing by 8% for each year closer to the death.
Below outlines the years between gift and death, and the applicable UK gift tax:
- Less than 3 years: 40%
- 3 to 4 years: 32%
- 4 to 5 years: 24%
- 5 to 6 years: 16%
- 6 to 7 years: 8%
- More than 7 years: 0%
UK inheritance tax allowances are offered on small gifts made out of a person’s normal income or on any gifts made to a spouse/partner, as long as they are a permanent UK resident. There is a UK inheritance tax exemption on gifts of £3,000 per year or between £1,000 and £5,000 on wedding gifts. More is explained in the UK government’s guide.
If you are a UK resident or have property in the UK, it is advisable to make a UK will to instruct how your assets are dealt with in the event of your death.
If you are a foreign resident you are entitled to write a will in your own country, which will be recognized by UK authorities as long as it is legally valid, although there will be additional costs if you have to translate the will into English as well as possible time delays.
If you don’t write either a UK will or a foreign will, your estate will be dealt with according to UK inheritance law.
You can also have two wills – a UK will and one made in your home country – as long as one doesn’t accidentally revoke or negate the other. If you are thinking of doing this, it is a good idea to consult a solicitor experienced in UK inheritance law for foreigners and locate a UK solicitor dealing in UK inheritance law.
Joint wills drawn up with spouses or partners are permitted in the UK.
There aren’t standard types of UK will so you can write your own, although it is advisable to consult a solicitor if your estate isn’t fairly small and straightforward.
A UK will can be handwritten or typed and should include:
- details of how your assets are to be distributed;
- information on who should look after any surviving minor children;
- who will be the executor of your estate;
- details of what should happen if beneficiaries die before you;
- your full name, date and location;
- your signature in front of two witnesses aged over 18;
- the signatures of the witnesses made in your presence.
You can change your UK will or make a new one at any time, although you need to follow the correct procedures. Changes need to be done by codicil, which is an official alteration that is signed and witnessed. If you make a new UK will, you need to destroy the old one and explain in the new will that previous wills are revoked.
In certain circumstances, UK wills can be changed after a person’s death. This can only occur if all beneficiaries left worse off by the changes formally agree, and it must be done within two years of the death. Changes to UK wills can be done to:
- reduce inheritance tax or capital gains tax payable;
- provide for someone left out of the will;
- move assets into a trust;
- clear up any ambiguity in the will.
You can consult the British government’s website to find out how to make a will on behalf of someone else if they have reduced mental capacity due to illness or injury can be found, or explore their selection of will templates.
Witnesses have to be individuals who are not beneficiaries of the UK will. You are free to keep your UK will at home (although you should inform someone, such as the executor, where it is) or you can leave it with your solicitor, your bank, a professional company, or the London Probate Service.
You can also register your will in the UK with the National Will Register, which can be done online. You don’t need to provide a copy of your will, you just need to give details of where the will is kept so it can be easily found in the event of your death.
The UK grant of probate is required by the person who executes the deceased’s will and distributes the assets.
When someone dies in the UK, the executor named in the will applies to the courts for the Grant of Probate. If no will has been left, this can be done by the deceased’s next of kin (e.g., spouse or children). If requesting a probate yourself, you can find a grant probate form online (IHT 421 or PA1).
In some cases, you will not be required to get a UK probate to transfer assets (for example, if the deceased left less than £10,000 or all assets automatically go to a spouse under co-ownership).