Previously known as death duties, inheritance tax (IHT) was introduced in 1986, replacing Capital Transfer Tax. It is the amount payable to Her Majesty’s Revenue and Customs (previously Inland Revenue) when someone inherits items of high value, whether money, assets such as paintings, or property from a person who has died.
Note: by civil partnership we mean a partnership made in front of a Registrar, not cohabiting partners.
If a surviving spouse (husband or wife) or civil partner is to inherit the entire estate, they do not have to pay inheritance tax. When they eventually also die, their nil rate band allowance is carried forward and applied to their estate. Therefore, if no other factors apply, the IHT is only payable on the value of the estate over £650,000. Please note this does not apply to cohabiting partners, not in a legally confirmed relationship.
If the estate is over this threshold but includes a residence that passes to direct descendants (a legally defined term) then up to £1 million may be inherited free of IHT.