What Are Death Duties in the UK—and How Do They Affect Your Estate?

“Death duties” sounds like something from a Dickens novel. In modern Britain, it’s basically another name for Inheritance Tax: the bill that can arrive when someone dies and their estate passes to the people they love.

The awkward part is that it doesn’t just hit “the super-rich.” A house, a bit of savings, maybe a life insurance payout, and suddenly you’re doing estate maths at the worst possible time. If you’ve ever wondered what counts, what’s tax-free, and why the family home is its own little universe of rules, you’re in the right place.

From “death duties” to modern IHT

“Death duties” is the old-fashioned label. The modern reality is Inheritance Tax (IHT): HMRC works out whether there’s an inheritance tax bill, and the executors deal with the paperwork while the beneficiaries wait (and try not to Google themselves into a panic).

• What it is: IHT is a tax on the net value of someone’s estate when they die, usually only on the part above the threshold.
• What it covers: IHT applies across the whole UK; probate/confirmation rules vary by nation, but the IHT rules themselves are UK-wide.
• What counts as the estate: The estate value includes money, property and possessions, plus things like investments and some gifts, minus liabilities and allowable debts.
• What to use for forms and help: HMRC’s IHT forms and contacts live on GOV.UK, including the IHT400 route and an HMRC helpline/contact point if you need support.

📌 Pro Tip: If you’re the one dealing with the admin, start with a one-page “estate list” (assets, debts, and rough values) before you touch any forms — it saves you from hunting for account numbers while you’re already having a rough week.

Thresholds and rates: How much IHT might you pay?

Think of IHT as a two-step process: you work out what’s covered by allowances, then you apply the rate to what’s left. Here are the main moving parts:

• Allowance: Nil-Rate Band (NRB): The core inheritance tax threshold is £325,000, and any unused NRB can usually transfer between spouses or civil partners.
• Allowance: Residence Nil-Rate Band (RNRB): Up to £175,000 extra can apply when a main residence passes to direct descendants, and unused RNRB can also be transferable in the right circumstances.
• Rate: Standard and reduced IHT rates: The standard rate is 40% on the taxable amount, or 36% if enough is left to charity under the qualifying rules.
• Estimate: An inheritance tax calculator can help you estimate the likely bill based on the net value of the estate and the allowances available in that tax year.

📌 Pro Tip: When you’re estimating, separate the thinking: allowances first, rate second — most confusion (and most overestimating) happens when people jump straight to 40% and forget the bands.

When do you pay—and who pays?

If you’re dealing with a death, you’re already carrying enough. The last thing you need is to discover, halfway through probate, that there’s a tax deadline quietly ticking away in the background. Here’s the simple version: IHT is usually paid early in the estate process, and it’s normally paid out of the estate before anything is passed on.

When do you pay?

• Deadline: Inheritance Tax is normally due by the end of the sixth month after the death.
• Interest: If it isn’t paid by then, HMRC can charge interest until it’s settled.
• Instalments: For certain assets (especially property), you may be able to pay in annual instalments rather than all at once, which can ease the pressure to sell quickly.

Who pays?

• Decision-maker: The executor or administrator (the estate’s personal representative) is the person responsible for dealing with IHT.
• Source of funds: The tax is normally paid from estate money before beneficiaries receive anything.
• Funding options: If the estate is short on cash, the personal representative may need to raise funds from estate assets or use instalments where available, and a life policy written in trust can sometimes help because it can pay out to beneficiaries outside the estate.

📌 Pro Tip: If you’re handling this, pick one calm first step: list the big assets, the big debts, and whether there’s cash available now — it makes every next decision feel less like guesswork.

Exemptions and reliefs: What can be tax-free?

The easiest way to make sense of IHT reliefs is to sort them into three buckets: who you leave assets to, what you leave, and what sits inside the estate no matter what.

• If you leave assets to certain people: Transfers to a spouse or civil partner are usually IHT-free.
• If you leave assets to certain causes: Gifts to charities are generally exempt, and leaving enough to charity can reduce the IHT rate on the rest of the taxable estate.
• If you leave the family home to direct descendants: The Residence Nil-Rate Band can add extra allowance when a qualifying home passes to children or grandchildren.
• If you own qualifying business or farm assets: Business Relief and Agricultural Relief can reduce the taxable value of certain trading or agricultural property, sometimes substantially.
• If you’re relying on ISAs: They’re tax-free for Income Tax and CGT in life, but ISA holdings are usually still part of the estate for IHT purposes.

📌 Pro Tip: When you’re estimating the bill, label each asset as “exempt,” “relieved,” or “fully taxable” first — it turns IHT from a fog into a checklist.

Valuation basics: Getting the numbers right

IHT is basically a maths test you didn’t ask to sit. The good news is that HMRC isn’t looking for perfection. It’s looking for reasonable market values with a paper trail.

• Step 1: Value everything at the date of death. Use open-market value for property, savings, investments, and personal possessions.
• Step 2: Subtract the debts HMRC allows. This usually includes mortgages and other allowable debts, plus funeral costs, to get to the estate’s net value for IHT.
• Step 3: Factor in how the asset is owned. Shared ownership, tenancy arrangements, and restrictions on selling can change the valuation, so the “headline” number isn’t always the IHT number.
• Step 4: Keep proof of how you got the number. Professional valuations and supporting evidence (like property comparables and statements) make HMRC questions much easier to deal with.

📌 Pro Tip: If you’re unsure on a big asset, spend the money on a proper valuation — it’s cheaper than a dispute with HMRC after you’ve already filed.

Planning to reduce the bill (legally)

IHT planning is mostly three jobs: write a will that actually works, use the allowances while you’re alive, and make sure there’s cash to pay HMRC without a forced sale.

• Plan your will: Structure it so the Nil-Rate Band and (if relevant) the Residence Nil-Rate Band can be used properly, especially if the family home is passing to children or stepchildren.
• Plan lifetime gifts: Use the everyday exemptions (like the £3,000 annual exemption and £250 small gifts), and keep clear records so the executor isn’t guessing later.
• Plan ownership and trusts: Review how assets are owned (and whether trusts are appropriate) so allowances and reliefs are actually usable when the second person dies.
• Plan liquidity: Make sure there’s a way to pay IHT on time, and consider life insurance written in trust so money can be available without swelling the estate or waiting on probate.

📌 Pro Tip: The most useful document in IHT planning isn’t a spreadsheet, it’s a simple “what happens if I die tomorrow?” page: who gets the house, where the cash comes from, and which allowances you’re relying on. It makes every next decision faster and calmer.

Make your plan work

With a clear will, sensible valuations, and the right allowances, many estates pay far less inheritance tax than people fear, and some pay none at all, while keeping the family home where it belongs.

If you want help sanity-checking your plan, book a free financial review with a regulated adviser through Unbiased. They can spot gaps, explain your options in plain English, and help you leave more to your loved ones and less to paperwork.

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