Did Inheritance Tax go to your family, or back to you after death?

Yes, you read that right. In the UK, tax doesn’t stop when life does. In fact, what you leave behind could become a taxable burden for your loved ones. This is where Inheritance Tax (IHT) comes in. Often referred to as “death duties,” IHT is charged on the value of your estate when you pass away, and without the right planning, it can easily catch families off guard.

I thought tax ends when someone dies. What’s the issue?

Touch wood. But when someone passes away, everything they owned — cash, property, shares, savings, and other assets — becomes part of their estate. If the total value exceeds the nil-rate band, which is currently £325,000 (2025/26 tax year), then anything above that threshold may be taxed at 40%.

The tax bill must be paid beforeyour family can inherit. In most cases, the executor — usually a spouse, adult child or trusted friend — is responsible for calculating and paying the tax before they can obtain a Grant of Probate, which gives them legal authority to distribute the estate. It’s a heavy responsibility at a difficult time.

What’s the exposure to unexpected tax?

Without effective estate planning, families may face more than just a large tax bill. There could be delays in asset distribution, penalties for underreported gifts, or even HMRC investigations into previous financial activity.

Gifts made during your lifetime are not always exempt. If they fall under the Potentially Exempt Transfer (PET) rules and you pass away within seven years of giving them, they may still be subject to IHT. The amount of tax depends on how many years have passed — taper relief may apply, but it reduces the rate, not the liability.

Families often don’t realise the true value of an estate — especially with rising UK property prices — until they begin the probate process. That’s when challenges surface, particularly if no planning was done in advance.

What can you do, and when?

Early planning is key.A simple will may not be enough. If you own UK property, have savings, investments, or joint assets, or have made financial gifts, it’s wise to get personalised estate planning advice.

Gifts made during your lifetime are often considered Potentially Exempt Transfers (PETs). These are only exempt from IHT if you survive for seven years after giving them. If you die within that period, the gift’s value could be taxed, depending on how many years have passed — taper relief might reduce the rate between years 3–7. Planning when and how to give can make a significant difference.

You should also consider the Residence Nil Rate Band (RNRB), which can increase your tax-free threshold when passing on your main residence to direct descendants. For married couples or civil partners, any unused threshold can be transferred, potentially doubling the allowance.

Inheritance Tax and Personal Tax Filing

Many individuals are familiar with the Self Assessment tax return, which is used to report income, capital gains, and claim allowances. While Inheritance Tax is separate from this annual filing, coordinating both your personal tax and estate planning strategies can significantly reduce your overall tax exposure.

Although you won’t file IHT as part of your annual Self Assessment, how you manage income, investments, gifts, and trusts during your lifetime directly affects the eventual IHT due. That’s why long-term personal tax planning and estate planning should go hand in hand.

A Final Act of Care

At our practice, we see estate planning not just as a financial task, but as an act of care. You’re not only organising your assets — you’re sparing your family the added stress and financial uncertainty at a very emotional time.

Seek Professional Advice

We help clients understand their position and plan for what may come. Whether you’re unsure about your exposure to Inheritance Tax or want to clarify how Self Assessment relates to your estate, we’re here to help. It’s never too early to plan wisely.

For more on UK tax explained clearly, follow our “Did You Know?” series. If you have questions about Inheritance Tax or other life events, we’re just a message away.

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