Do you need to worry about inheritance tax?

5 min Read Published: 07 Apr 2020

Do you need to worry about inheritance tax?

What you need to do

Calculate your potential inheritance tax bill


  1. Open our FREE inheritance tax calculator
  2. Enter the current value of your home, other properties, personal possessions, savings accounts and investments
  3. Enter the value of any life insurance policies that are due to payout in the event of your death that are not written under trust
  4. Enter the value of any gifts made within the last seven years
  5. Put in the value of your outstanding mortgage and loans
  6. Click Calculate

The inheritance tax calculator will show you the total value of your estate and your potential inheritance tax (IHT) bill assuming the worst-case scenario (i.e without any IHT planning).

Now what?

If the calculator suggests that you may have a potential IHT liability then at the moment it is possible for Money MOT users to request a FREE Inheritance Tax Check with a tax professional that will not only quantify the size of your potential inheritance tax bill exactly (the average in the UK is £199,000) but they will tell you the exact steps you need to take to reduce your IHT bill. Most importantly of all, there is no obligation on your part to do anything when you request a review. That's why I strongly recommend that people take advantage of this free check while it's still available.

The Theory

What is inheritance tax?

  • Inheritance tax is calculated on the total deceased’s estate and gifts made within 7 years applicable at the date of death. Tax is paid on amounts over the ‘nil rate band’ also known as the IHT threshold.
  • Married couples and civil partners are allowed to pass on their assets tax-free to each other and the surviving partner can, in addition, use any of their partner's unused nil-rate allowance
  • On top of the existing personal inheritance tax threshold of £325,000 there is a 'main residence nil-rate band'. The new inheritance allowance now means that a married couple or civil partnership are able to pass on a total estate worth £1 million free of inheritance tax, including their home. The main residence nil-rate band is currently set at £175,000 per person for the 2020/21 tax year and will rise by inflation each year. So that means an individual will be able to pass on £500,000 (including property) without paying inheritance tax. The catch is that the £175,000 allowance can only be applied to your main residence that is passed on to children or grandchildren

Who has to pay inheritance tax?

  • On death, the deceased’s total assets (and gifts made in the last 7 years) are calculated and the amount over the relevant IHT thresholds, relevant at the time of death, will be taxed at the rate applicable at the time of death (currently 40%).
  • Any inheritance tax due will normally be paid from the deceased’s estate
  • Any inheritance tax due on gifts made in the seven years prior to death should be paid by the recipients of the gift
  • If there is a will then the administrator of the estate will arrange for IHT to be paid
  • Inheritance tax has to be paid within 6 months of death, extra time can be allowed if assets are taking longer to sell (for example any inheritance tax on property)
  • Any unpaid tax will incur interest charges

How can I reduce my inheritance tax?

Here are the 9 best ways of how to avoid paying inheritance tax in the UK

  • Make a will
  • Keep total assets below the nil rate band
  • Give assets away
  • Put assets in trust
  • Take out life insurance to cover estimated IHT bill
  • Make gifts from excess income
  • Give away assets that are free from CGT
  • Leave something to charity
  • Spend it!

For more information on inheritance tax please read my article Inheritance Tax Explained.