Inheritance Tax (IHT) – Full Guide to UK Inheritance Tax, IHT Allowances, Thresholds, Forms & How to Report to HMRC

What Is Inheritance Tax (IHT)?

Inheritance Tax (IHT) is a tax applied in the UK on the estate (property, money, and possessions) of someone who has died. Although often misunderstood as a tax most families will pay, in reality less than 4% of estates pay inheritance tax — mainly due to available allowances, reliefs, and exemptions.

However, when IHT is due, the process can be stressful, time-consuming, and filled with complicated forms such as:

• IHT205 – Return of Estate Information (for excepted estates)

• IHT400 – Main Inheritance Tax Account (for taxable or complex estates)

• IHT421 – Probate Summary

• IHT435 – Residence Nil Rate Band claim

• IHT436 – Transferable RNRB

• IHT402 – Transferable Nil Rate Band

• IHT403 – Gifts and lifetime transfers

• IHT404 – Jointly owned assets

• IHT412 – Pension details

• IHT500 – Filing return and paying by instalments

This guide explains everything — from what IHT is, how it’s calculated, which forms you need, how to complete them, and how Audit Consulting Group can support families through the process.

When Is Inheritance Tax Paid?

IHT is normally paid when:

• The total estate value exceeds the Nil Rate Band (NRB)

• Certain gifts were given within 7 years before death

• Trusts are involved

• Overseas assets are included

• Property prices push estate above thresholds

• Complex ownership arrangements exist

The standard IHT threshold (Nil Rate Band) is:

£325,000

If the estate is worth less than £325,000, no IHT is normally due.

When IHT Is NOT Paid

No IHT is due when:

– The estate is worth less than £325,000

– Everything is left to a spouse or civil partner

– Everything is left to a charity

– The deceased lived permanently abroad and was not UK-domiciled (special rules apply)

– The estate qualifies as an excepted estate

Further rules:
https://www.gov.uk/valuing-estate-of-someone-who-died

Residence Nil Rate Band (RNRB) – Additional Allowance

Introduced in 2017, the Residence Nil Rate Band (RNRB) allows estates to claim an extra allowance if a home is passed to:

• Children

• Step-children

• Adopted children

• Foster children

• Grandchildren

Current RNRB value:

£175,000

This means a married couple could potentially pass on up to £1 million without paying IHT, using:

• £325,000 NRB × 2

• £175,000 RNRB × 2

What Is the Inheritance Tax Rate?

Standard IHT rate:

40% on value above thresholds.

Reduced rate:

36% if at least 10% of the estate is left to charity.

Who Pays Inheritance Tax?

The executor or administrator usually pays IHT from the estate.

But IHT can also be due from:

• Beneficiaries (in special cases)

• Trustees (if trusts are involved)

• People receiving lifetime gifts

For gifts, each recipient may need to pay tax if the 7-year rule applies.

Understanding the Main IHT Forms

This is one of the most important sections, because many people do not know which form they need.

IHT205 – For Excepted Estates (No Tax Due)

Used when:

• Estate value under threshold

• No complicated assets

• No overseas property above limits

• No significant lifetime gifts

IHT205 is used alongside probate applications.

Guidance:
https://www.gov.uk/government/publications/inheritance-tax-return-of-estate-information-iht205

IHT400 – For Taxable or Complex Estates

Used when:

• IHT is due

• Estate exceeds £325,000

• Large gifts within 7 years

• Trusts exist

• Overseas property

• Business or agricultural property

• Property jointly owned

• Life insurance not written in trust

IHT400 includes over 20 supplementary forms, depending on estate complexity.

Guidance:
https://www.gov.uk/government/publications/inheritance-tax-inheritance-tax-account-iht400

Download Inheritance Tax account (IHT400)

IHT421 – Probate Summary

This form must be submitted before applying for probate.
HMRC uses it to tell the Probate Registry whether IHT has been paid.

IHT435 & IHT436 – Residence Nil Rate Band

Used to claim:

• RNRB

• Transferable RNRB

Essential for maximising allowances.

IHT402 – Transferable Nil Rate Band

Used when a spouse or civil partner died previously and did not use all of their threshold.

Other Relevant IHT Forms

• IHT403 – Gifts

• IHT404 – Joint assets

• IHT406 – Houses & property

• IHT407 – Household contents

• IHT410 – Life insurance policies

• IHT411 – Listed shares & securities

• IHT412 – Pension

• IHT500 – Paying instalments

Audit Consulting Group helps complete all forms.

How to Value an Estate for IHT (Step-by-Step)

Correct estate valuation is essential.

Step 1 — Identify all assets

• Property

• Bank accounts

• Investments

• Vehicles

• Business interests

• Insurance policies

• Crypto assets

• Personal belongings

Step 2 — Identify all liabilities

• Mortgage

• Loans

• Credit cards

• HMRC debts

• Funeral expenses

Step 3 — Calculate gross and net estate

Step 4 — Check gifts in last 7 years

Step 5 — Identify exemptions

• Spouse exemption

• Charitable exemption

• Small gifts

• Annual allowance

Step 6 — Apply RNRB and transferrable allowances

Step 7 — Determine IHT due

Audit Consulting Group offers complete estate valuation support.

How To Pay Inheritance Tax

Payment deadlines depend on estate assets.

Deadline: 6 months after end of month of death

Payments can be made via:

• Bank transfer

• Debit card

• From life insurance

• From estate bank account

• By instalments (IHT500) for property

Guidance:
https://www.gov.uk/paying-inheritance-tax

IHT on Gifts – The 7-Year Rule Explained

IHT may apply to gifts if death occurs within 7 years.

0–3 years: 40%

3–4 years: 32%

4–5 years: 24%

5–6 years: 16%

6–7 years: 8%

After 7 years: 0%

This is known as taper relief.

Trusts and Inheritance Tax

Trusts have their own IHT rules.

They may be subject to:

• Entry charges

• 10-year anniversary charges

• Exit charges

Forms required:

• IHT100

• IHT100a

• IHT402 (if deceased spouse allowance applies)

We handle trust IHT reporting.

Common Inheritance Tax Problems

For Families:

• Difficulty valuing property

• Missing bank information

• Unclear gifts

• Overseas assets

• Delays from HMRC

• Incorrect forms submitted

For Executors:

• Penalties for late submissions

• Complex supplementary forms

• Errors in IHT400

• Cash flow issues

• Incorrect probate applications

For Beneficiaries:

• Confusion about tax due

• Unexpected tax on gifts

• Incorrect estate distribution

Audit Consulting Group resolves all of these issues.

Case Studies

Case Study 1 – Incorrect Property Valuation

Estate valued home too low. HMRC requested revaluation.
Outcome: We negotiated with HMRC, resolved discrepancy, and avoided penalties.

Case Study 2 – Missed RNRB Claim

Family missed out on £175,000 allowance.
We submitted IHT435 & IHT436 → £70,000 IHT saved.

Case Study 3 – Gift Investigation

HMRC questioned multiple gifts.
We prepared full schedules → HMRC accepted without additional tax.

Case Study 4 – Late IHT Filing

Executor faced penalties.
We negotiated a reduction due to reasonable excuse.

Frequently Asked Questions (FAQ)

Q1: What does IHT stand for?

Inheritance Tax — tax on estates after death.

Q2: Do all estates pay IHT?

No — only around 4% do.

Q3: What is the main IHT threshold?

£325,000 plus potential £175,000 RNRB.

Q4: What is the IHT rate?

40% (or 36% with charitable giving).

Q5: Do I need IHT400 or IHT205?

IHT205 = no tax due
IHT400 = tax due or complex estate

Q6: Do I need probate before paying IHT?

No — tax is paid first to allow probate.

Q7: Can I pay IHT in instalments?

Yes — especially for property.

Official HMRC guidance:
https://www.gov.uk/inheritance-tax