Not everyone has to pay inheritance tax in the UK. Our guide covers everything including the laws of succession, British inheritance tax rates, exemptions and more
If you are a foreigner living or retired in the UK or if you own property in the UK, you will need to consider how UK inheritance law affects you, and if you will be subject to inheritance tax in the UK.
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. Standard UK inheritance tax rate is 40%. 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 British inheritance law, with sections including:
- Inheritance and succession laws in the UK
- Understanding UK inheritance tax
- Reducing your inheritance tax in the UK
- Gift and wealth taxes
- Paying gift and inheritance tax in the UK
- Inheritance law on pensions in the UK
- Valuing an estate in the UK
- Useful resources
Thinking about getting to grips with estate planning in the UK? Kwil provide easy-to-understand help and guidance on their innovative online platform. Whether you want to draw up an online will or learn more about online power of attorney, the friendly expert service at Kwil can help.
Inheritance and succession laws in the UK
Inheritance law in the UK applies to all official residents, whether national or from overseas, on all of their worldwide movable assets. If you are a non-resident who owns property in the UK, British inheritance law – and consequently inheritance tax in the UK – 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. However, since the UK opted to leave the EU in 2016, new legislation may affect these rules, so think about seeking legal counsel before making any decisions.
Inheritance laws in the UK vary across the constituent countries. In England and Wales, there is no forced heirship, and people are free to leave their property to whomever 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 movable assets (everything excluding property and land). Where there is only a spouse or children, they are entitled to 50% of net movable assets.
Writing a will in the UK
According to an independent survey, just 45% of UK adults had enacted wills in 2019. Be aware that without a will, any estates left behind are divided according to UK inheritance law. Such rules may not always be in accordance with your wishes; for instance, unmarried partners are not entitled to the share of any estate.
However, it’s fairly straightforward to create a will. You can do so with the help of a solicitor, certain charities, or you can even legally write your own will in the UK. Alternatively, there are a growing number of online platforms that can help you with this delicate process. Will services in the UK include:
For more information on what you need to prepare, read our expert guide to planning wills and estates in the UK.
What if there is no will?
If a British resident dies without leaving a will, intestacy law determines how their estate is distributed and what UK inheritance tax is to be paid. 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||As of February 2020, the spouse/partner receives the first £270,000 – called the statutory legacy – of the estate and all their personal possessions, whatever their value. Half of the remainder also goes to the spouse or partner, with the rest split equally between any children. The share of any minor children is held in trust until they reach 18. If any children are deceased, their share goes to any grandchildren. The spouse or civil partner inherits even though the couple may have informally separated and were had not yet legally divorced or ended the partnership at the time of death.|
|Where there is a surviving spouse/partner but no children||Here, the spouse/partner gets the first £270,000 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 the siblings of the deceased (or nieces/nephews). Where 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
Inheritance rules when someone dies intestate in Scotland are more complex. This is because numerous stages must be carried out in order, with different shares of the deceased’s estate being divided among surviving family members. These rules are 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|
|Family home||Spouse/partner up to a value of £473,000. If the house is worth more, it may need to be sold||Spouse/partner up to a value of £473,000.|
|Furniture||Spouse/partner up to a value of £29,000.||Spouse/partner up to a value of £29,000.|
|Finances||£50,000 to spouse/partner.||£89,000 to spouse/partner.|
|Legal rights||One-third of the net movable estate to spouse/partner, one-third to children.||50% of the net movable 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 groups. 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 groups. If none from either group, then passed down in descending order to: aunts/uncles, grandparents, great aunts/uncles, more distant relatives.|
Intestacy rules in Northern Ireland
|If there is a surviving spouse/civil partner and children||The spouse/partner receives the first £250,000 free of tax and all their personal possessions, but not items used for business. If the deceased left one child, the spouse/civil partner, and the child split the remaining estate 50/50. If there is more than one child, the spouse/civil partner gets one-third of the remainder. The other two-thirds is divided equally between the children (or the respective grandchildren if the children died while the deceased was still alive).|
|Where there is a surviving spouse/partner but no children or grandchildren||As above, the spouse/partner gets the first £250,000 and the remainder is split 50/50 between the spouse/partner and surviving parents (equally if both are alive). If there are no surviving parents, then the share goes to the siblings of the deceased (or nieces/nephews). Where 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 equally 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).|
A noteworthy aspect of intestate succession in Scotland and Northern Ireland is that a surviving partner who wasn’t married or in a civil partnership with the deceased has no automatic right to inherit their estate. If such partners have not been provided for in some way, they have the right to file a claim to their inheritance.
UK inheritance law regarding marriage
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 such 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. However, such gifts may attract UK inheritance tax or gift tax, depending on when they were made.
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.
Unclaimed inheritance in the UK
If an inheritance is unclaimed in the UK, if there are no legal heirs or the inheritance is rejected by all beneficiaries, then the estate passes to the crown as ownerless property (or bona vacantia). However, it is possible to make a claim on the estate if you feel you’re entitled to a share. People who are eligible to claim a share must be entitled relatives. Those who are not related to the deceased, such as a live-in partner or a carer, can apply for a grant from the estate.
Apply on the UK government website.
Inheritance tax in the UK
In the UK, inheritance tax falls due to the estate of deceased UK residents and on the UK property of someone who lived overseas. Such property may include (but is not limited to) real estate, cash, investments, and other possessions. 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.
The executor of the will, or the person administering the estate if there is no will and testament, pays inheritance tax before it is handed down. Beneficiaries, therefore, 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.
Rates and reductions on inheritance tax in the UK
The standard rate for inheritance tax in the UK is 40%. Tax rates and exemptions are the same for nationals and foreign residents, as well as for non-residents with property in the UK. However, only a small percentage of estates – between 4 and 5% – are large enough to incur inheritance tax.
This is because there are several allowances and exemptions to reduce the amount of inheritance tax payable on an estate:
- There is normally no tax to be paid if the estate is valued at less than £325,000 (also referred to as residence nil rate band or RNRB). This tax-free threshold applies to estates of all sizes; thus the 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 deceased’s lifetime up to a period of 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.
Nevertheless, regardless of the value of an estate, you’ll still need to report it to HMRC. 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.
Inheritance tax forms
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.
Inheritance tax threshold
The general inheritance tax threshold, or the 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 £500,000.
If the inheritance doesn’t meet the full threshold value, any unused threshold can be transferred to a spouse or partner’s threshold. As of the tax year 2020-21, most married couples or civil partners may pass on up to £650,000, or £1m if your estate includes your home, effectively doubling the amount the surviving partner can leave behind free of UK inheritance tax.
Reliefs and exemptions
In addition, certain other claims are eligible for an additional UK inheritance tax threshold, with one main condition being that a share of the estate must be left to a direct descendant (i.e., child or grandchild). The additional maximum threshold (on top of £325,000) will depend on the year of death:
- £150,000 in 2019-2020
- £175,000 in 2020-2021
Other reliefs and exemptions are worth looking into. The estate can also pay inheritance tax at a reduced rate of 36% on some assets if you leave 10% or more of the net value to charity in your will. Additionally, a business relief allows some assets to be passed on free of inheritance tax or with a reduced bill.
Gift tax in the UK
Gifts made during the last seven years of life are subject to UK inheritance tax, although any gifts made three to seven years before death are taxed at a reduced rate if they are worth more than £325,000.
Such gifts include anything of value, such as money, property, possessions, or when an asset suffers a loss in value when it is transferred. For example, if you sell your house to your child for less than it’s worth, the difference in value counts as a gift.
UK inheritance tax on gifts is levied at the full 40% within three years of death. Gifts made between the fourth and seventh years from a person’s death incur gift tax. These rates taper off gradually as outlined below:
- 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%
There is a UK inheritance tax exemption on gifts of £3,000 per year (£2,500 for a grandchild or great-grandchild, £5,000 for a child) or between £1,000 and £5,000 on wedding gifts. Such an exemption may be carried forward to the next tax year – but only for one year.
Additionally, you can also make normal gifts out of your income or help certain family members with living expenses, so long as doing so does not affect your standard of living. Finally, you may give small gifts of up to £250 per person as you want during the tax year under certain conditions.
There’s also no inheritance tax to pay on gifts between spouses or civil partners. You can give them as much as you like during your lifetime, as long as they live in the UK permanently.
Consult the UK government’s guide for details.
Paying gift and inheritance tax in the UK
HMRC dictates that the executors of an estate must pay inheritance tax by the end of the sixth month after the person died. Following this deadline, HMRC will charge interest.
To pay an inheritance tax bill, you will need a payment reference number. You can then pay from your own bank account or from a joint account you held with the deceased. Check payments have been temporarily halted following the outbreak of the coronavirus COVID-19.
If you are unaware of how much exactly you need to pay, you may also pay an estimated amount, called a payment on account.
HMRC do not send receipts for installments made on an inheritance tax bill. Instead, they write to inform you when the entire amount has been paid, and alert you to any outstanding interest payable.
Inheritance law on pensions in the UK
In general, UK rules allow anyone to inherit your pension upon your death. However, the way you take your pension influences how you can leave it to someone else when you die, according to PensionWise:
- If you take your pension as one or multiple lump sums in cash but don’t use it or invest it, it forms part of your estate and becomes liable for UK inheritance tax.
- Should you die while drawing a pension, the payments that a nominated heir or beneficiary gets depends on factors like their age and their health. Joint annuities continue to your beneficiary after you die, but they cannot leave the payments to someone else when they die.
- Annuities payable for a guaranteed period typically continue even if you die before that period ends. However, if you die after the end of the guaranteed period, your spouse won’t get any payments.
- Capital or value-protect annuities become payable to any beneficiaries as a lump sum – this is your pot minus any annuity payments you took before you died.
- Finally, if you choose the adjustable income pension option, you can leave money left in your pension pot to anyone you like.
In most cases, your heir pays no tax if you die before the age of 75 years. Should you die after that, your heir will need to pay income tax on an inherited pension. Additional tax may fall due if pension withdrawals plus any estate you leave behind is more than £1,073,000.
Valuing an estate in the UK
When a UK resident dies, heirs must apply for the legal right to deal with their estate. This is called applying for probate. In England and Wales, and Northern Ireland, there is a grant of probate if the person left a will; without a will, you receive letters of administration. In Scotland, this process is called applying for confirmation. The processes are different in each constituent country, but in most cases, you can apply online (IHT 421 or PA1). You will be required to provide a number of documents, such as the will itself and any codicils, certificates of birth, death and marriage or partnership as applicable.
There are also occasions when you may not need probate; the UK government explains these conditions on its website.
How to value an estate
When applying for probate, you will need to estimate the estate’s value. There are two aspects to this process. First, contact banks, utility providers and other institutions where the deceased had accounts and ask for an official statement of their assets. Second, value the other possessions of the deceased as of the day they died, including their home, car, jewelry, as well as any outstanding payments due to them, and any gifts they may have made in the preceding seven years. Also estimate any outstanding debts. You may then calculate what UK inheritance tax applies to the estate.
You do not need an accountant to value the estate for you and can report these figures to HMRC directly. However, it is advisable to get a professional estimate, particularly if the deceased had assets of different kinds or if these were in different countries.
Valuing the estate can take 6 to 9 months, or even longer for large estates. Accordingly, expats may want to put their affairs in order at the time of writing a will so as to ensure a smooth transfer of assets to their heirs.