With the Autumn Budget 2025 just around the corner (26th November 2025), Inheritance Tax (IHT) is once again at the forefront of national discussion.
In 2022-23, roughly 31,500 estates — about 4.6% of deaths — incurred an IHT charge, with tax receipts at approximately £6.7 billion. And, in 2024-25, those receipts climbed to a record £8.2 billion. With the tax-free thresholds frozen and asset values rising, more families are now finding themselves unexpectedly caught in the IHT net.
It’s no surprise, then, that many people are anxiously awaiting news of potential reforms in the Autumn Budget. But, how exactly does Inheritance Tax work, and how might it affect your estate or your loved ones’ inheritance?
What is Inheritance Tax?
Inheritance Tax is a tax on the estate (property, money, and possessions) of someone who has died. In its simplest form, it’s paid on the portion of an estate that exceeds a certain tax-free threshold, which is currently £325,000.
The concept of taxing estates isn’t new. Its origins date back to 1894, when then-Chancellor Sir William Harcourt introduced the “Estate Duty” under the Liberal government. It was designed to redistribute wealth and ensure that those with large estates contributed more to public finances. Over time, this duty evolved into the Inheritance Tax we know today, introduced formally in 1986 under Nigel Lawson.
While the principle of fairness underpins the policy, IHT has long been controversial. Critics argue it amounts to “double taxation”, while supporters see it as a way to address inequality.
Regardless of political leanings, it remains a complex and emotive issue for families across the UK.
Current Inheritance Tax Rates, 2025
For the 2025/26 tax year, Inheritance Tax is charged at 40% on the value of an estate above the tax-free threshold (known as the nil-rate band), which remains at £325,000.
Importantly, these thresholds have been frozen until 2030, meaning more estates will fall into taxable territory as property prices and asset values increase.
There’s also an additional residence nil-rate band (RNRB) of £175,000 if you leave your main home to your direct descendants (children, stepchildren, or grandchildren). That means, in some cases, individuals can pass on up to £500,000 tax-free.
Plus, it’s possible for couples to combine their allowances to transfer up to £1 million before Inheritance Tax applies.
Exemptions from Inheritance tax
Not every estate pays Inheritance Tax. Several key exemptions and reliefs can significantly reduce or even eliminate the amount owed:
- Spouse or Civil Partner Exemption
Anything you leave to your spouse or civil partner is exempt from IHT, regardless of the amount.
- Passing on Your Home to Direct Descendants
As mentioned, leaving your main residence to children or grandchildren can qualify for the additional residence nil-rate band.
- Charitable Donations
Gifts left to registered charities are exempt. If you leave at least 10% of your net estate to charity, the IHT rate on the remainder of your estate may be reduced from 40% to 36%.
- Lifetime Gifts
You can give away up to £3,000 each year without it being added to your estate for IHT purposes. Gifts made more than seven years before your death are also generally exempt.
- Business Relief
Some business assets can qualify for up to 100% relief, meaning their value is ignored when calculating IHT.
How Inheritance Tax Works in Practice
Understanding how Inheritance Tax applies in real life can make a big difference when planning ahead. Below are some common scenarios that illustrate how IHT is calculated and how exemptions or reliefs can change the outcome.
Married Couple without Children
When one spouse passes away and leaves everything to the surviving partner, no Inheritance Tax is due thanks to the spousal exemption.
In addition, any unused portion of the deceased’s £325,000 nil-rate band can be transferred to the surviving spouse.
So, if Mr. and Mrs. MacDonald jointly own a home worth £500,000 and have £200,000 in savings, when Mr. MacDonald passes away, his estate passes tax-free to Mrs. MacDonald.
When Mrs. MacDonald later dies, her estate is valued at £700,000. Because the couple’s combined nil-rate bands total £650,000, IHT is only payable on the remaining £50,000, taxed at 40%.
Married Couple with Children
When a couple leaves their home to their children or grandchildren, they can benefit from the additional Residence Nil-Rate Band (RNRB), currently set at £175,000 per person.
This means a couple can potentially pass on up to £1 million tax-free (£325,000 each nil-rate band + £175,000 each residence nil-rate band).
So, if an estate is worth £950,000 and the main home is left to the couple’s children, there will be no IHT to pay, as the estate falls within the combined allowances.
However, if the estate is worth £1.2 million, the £200,000 excess would be taxed at 40%, resulting in a potential IHT bill of £80,000.
Unmarried Couple (with or without Children)
Unmarried partners, and/or cohabiting couples, do not benefit from the spousal exemption, even if they have lived together for decades. Unless assets are jointly owned, anything left to the surviving partner above the £325,000 threshold could be subject to 40% tax.
For example, if Ms. Robertson leaves her partner £450,000 and has no children, IHT is due on £125,000, meaning a tax bill of £50,000.
This is why unmarried couples often face higher tax liabilities and may benefit from a cohabitation agreement, or estate planning advice to explore options such as gifting, trusts, or life insurance policies written in trust to mitigate exposure.
Learn more about Cohabiting Couples & Property Ownership: What are my Legal Rights?
Estate Without a Will
When someone dies intestate (without a valid will), their estate is divided according to strict legal rules rather than personal wishes.
In Scotland, this follows a complex hierarchy under the Succession (Scotland) Act 1964, which prioritises spouses, civil partners, and certain relatives. However, if an estate is not administered carefully, assets might pass in a way that prevents exemptions from applying, potentially leading to a higher IHT bill.
That means, if an unmarried person dies without a will and leaves behind a partner and adult children, the partner may not automatically inherit the home. Instead, the property could be split, creating legal complications and possible tax exposure.
Drafting a will ensures that your assets go where you intend, and that you make the most of available allowances and reliefs.
Estates with International Assets
It’s common for people to have assets across multiple countries, such as property abroad or foreign investments. If the deceased was UK-domiciled, their worldwide assets are usually subject to UK IHT. Conversely, those domiciled elsewhere may only owe IHT on UK-based assets.
Navigating these cross-border complexities can be challenging, particularly where local probate laws differ. This is where specialist international probate advice, such as that offered by our experts at Neil Kilcoyne Solicitors, becomes invaluable, ensuring compliance and minimising tax exposure across jurisdictions.
Paying the Tax to HMRC
When it comes to paying the necessary Inheritance Tax to HMRC, it’s the executor of the will, or administrator of the estate, that is responsible for calculating and paying Inheritance Tax.
IHT must generally be paid within six months of the end of the month in which the person died. HMRC allows payment in instalments (usually over ten years) if the estate includes property or certain business assets.
Delays in paying IHT can incur interest, so early planning and accurate valuations are crucial.
What to Expect from the Autumn Budget 2025
"There’s always speculation ahead of a Budget, but it’s important not to make hasty financial decisions based on headlines. The key is to make sure your estate planning is robust and tax-efficient, whatever changes are announced.”
While official announcements won’t be made until 26th November, speculation is already widespread. The Government faces growing pressure to respond to concerns that the current Inheritance Tax system is outdated, overly complex, and increasingly impacts middle-income families rather than just the wealthy.
In the last few years, IHT receipts have surged to record levels — exceeding £8 billion in 2024 — largely due to frozen thresholds and rising property values.
Many expect the Chancellor to address rising IHT receipts and growing public concern, with media speculation suggesting that potential reforms could include:
- Adjusting the nil-rate band or residence nil-rate band thresholds;
- Revising lifetime gift rules; or
- Expanding reliefs for business and agricultural assets.
With thresholds frozen and house prices still high, many “ordinary” estates, particularly in large cities like Glasgow, Edinburgh, London, and the South East of England, are being caught by a tax originally intended for the very wealthy. Even modest family homes can now push estates over the £325,000 limit.
The outcome of the Autumn Budget 2025 will therefore be watched closely by families, financial planners, and legal professionals alike. Any change, even minor, could have significant implications for how individuals plan their wills, gifts, and estates over the coming years.
Estate and Inheritance Tax Planning with a Solicitor
Inheritance Tax can feel like a maze of rules, exceptions, and deadlines. However, with the right legal advice, it’s possible to structure your estate efficiently and protect more of your wealth for your loved ones.
At Neil Kilcoyne Solicitors, our Inheritance tax solicitors tailor our advice to your individual circumstances, helping you understand what’s taxable, what exemptions apply, and how best to manage your estate both in Scotland and internationally.
Whether you’re reviewing your will, transferring assets, or tracking down international assets, our experienced executry and probate solicitors are here to guide you through the process and provide clear, practical solutions.
Neil Kilcoyne Solicitors, By Your Side Since 1998
If you’re concerned about how IHT could affect your estate or your family’s future, speak to the team at Neil Kilcoyne Solicitors. We’ll help you plan ahead, reduce unnecessary tax burdens, and ensure your estate is handled efficiently and in your best interests.
Call us or email us to discuss your inheritance tax planning needs. Alternatively, you can fill out the form below to arrange an appointment with one of our solicitors.
Frequently Asked Questions About Inheritance Tax
Inheritance Tax (IHT) is a tax on the estate, including property, money, and possessions, of someone who has passed away. It is paid when the total value of an estate exceeds a certain tax-free allowance, known as the nil-rate band. The tax is usually paid by the executor or administrator of the estate before assets are distributed to beneficiaries.
The standard rate of Inheritance Tax is 40% on the value of your estate above the available tax-free thresholds. However, this rate can be reduced to 36% if at least 10% of your net estate is left to charity. In certain cases, such as lifetime gifts made within seven years of death, taper relief may also reduce the rate payable depending on how long ago the gift was made.
For the 2025/26 tax year, the standard nil-rate band remains at £325,000. This threshold has been frozen until 2030.
If your estate is worth less than £325,000, there is normally no IHT to pay. For married couples or civil partners, any unused allowance from the first death can be transferred to the surviving partner, effectively doubling the threshold to £650,000.
If you pass on your home to your children or grandchildren, you may also qualify for the additional residence nil-rate band of £175,000, potentially allowing a couple to pass on up to £1 million tax-free.
Generally, everything a person owns at the time of their death is considered part of their estate for IHT purposes. This includes:
- Property (homes, land, and buildings)
- Savings and investments
- Vehicles, jewellery, and valuable personal items
- Certain life insurance policies (if not written in trust)
- Some gifts made within seven years before death
Assets held jointly are also counted, though usually only the deceased’s share is taxable. If you own property abroad or hold overseas assets, these may also be subject to UK Inheritance Tax depending on your domicile status.
There are several important exemptions and reliefs that can reduce or eliminate the amount of Inheritance Tax due:
- Spouse or Civil Partner Exemption: Anything left to your spouse or civil partner is exempt from IHT, regardless of value.
- Residence Nil-Rate Band (RNRB): If you leave your home to direct descendants (children, stepchildren, or grandchildren), your estate can benefit from an additional tax-free allowance of £175,000.
- Charitable Donations: Gifts to registered charities are exempt from IHT. If you leave at least 10% of your net estate to charity, the tax rate on the rest of your estate may be reduced from 40% to 36%.
- Annual and Lifetime Gifts: You can gift up to £3,000 each year tax-free. Smaller gifts (up to £250 per person per year) are also exempt. Gifts made more than seven years before your death are generally not counted towards your estate.
- Business and Agricultural Relief: Qualifying business assets or agricultural property can be passed on with up to 100% relief, meaning they are not subject to IHT.
