Who Pays Inheritance Tax in the UK?

Inheritance tax is normally paid from the deceased person's estate, not directly by the people receiving an inheritance. The executor or administrator usually arranges payment to HM Revenue and Customs (HMRC) before distributing the remaining assets.

However, beneficiaries, trustees and people who received certain gifts before a death can sometimes become liable. Understanding who pays inheritance tax matters if you're administering an estate, inheriting property or wondering whether HMRC could ask you to pay personally. The answer depends on the assets involved, previous gifts and whether the estate's tax liabilities have been settled.

Is inheritance tax paid by the estate or the beneficiaries?

In most circumstances, inheritance tax is paid using the deceased person's estate assets.

For example, if an estate includes savings and property, the executor may use available funds to settle the inheritance tax bill before transferring the remaining assets to beneficiaries.

Inheritance tax is normally paid from estate assets, so executors aren't generally expected to bear the cost themselves. They may choose to advance money towards a tax payment and seek reimbursement from the estate or beneficiaries where appropriate.

However, executors have legal responsibilities when dealing with estate liabilities. Distributing assets without properly accounting for inheritance tax can expose them to personal liability in certain circumstances. The important question is whether you're administering the estate or have received an asset that carries a separate tax liability.

Executors and their responsibilities

An executor is appointed through a valid will to administer the deceased person's estate.

Their responsibilities generally include:

• Identifying and valuing estate assets.
• Establishing outstanding debts and liabilities.
• Calculating potential inheritance tax.
• Completing required HMRC reporting.
• Arranging tax payment and distributing the remaining estate.

Executors must establish the estate's liabilities before distributing assets. Where ownership arrangements or valuations are complicated, professional advice may be appropriate.

Administrators when there is no will

If someone dies without a valid will, an eligible person can apply for authority to administer their estate.

Once appointed, the administrator generally has responsibilities similar to those of an executor.

This may involve obtaining a grant of representation, collecting assets, settling debts and distributing the estate according to the intestacy rules.

Where property, business interests or other assets are difficult to value or access, additional legal or tax advice may be necessary.

Can you inherit money or property without paying inheritance tax?

Yes. Beneficiaries don't normally pay inheritance tax directly because the estate generally settles the liability before distribution.

The standard inheritance tax threshold, known as the nil-rate band, is £325,000. The usual rate is 40% on the taxable amount above the available allowances. However, exemptions and additional allowances can affect the final calculation.

What happens when an estate is below the threshold?

If an estate falls within its available allowances, there may be no inheritance tax to pay.

For example, an estate worth £250,000, with no relevant taxable gifts or other complications, would ordinarily fall below the standard £325,000 threshold.

Reporting requirements may still apply depending on the circumstances.

What if the estate is worth more than £325,000?

An estate exceeding £325,000 doesn't automatically generate an inheritance tax bill.

Several exemptions and allowances may apply:

• Spouse or civil partner exemption: Qualifying transfers are generally exempt, subject to applicable conditions.
• Residence nil-rate band: An additional allowance of up to £175,000 may apply when a qualifying home passes to direct descendants.
• Transferable allowances: Unused qualifying allowances from a deceased spouse or civil partner may increase the surviving partner's threshold.
• Charitable exemptions: Qualifying gifts to charity may be exempt.

The residence nil-rate band is reduced for estates exceeding £2 million, and not every estate qualifies for the full allowance.

GOV.UK's inheritance tax thresholds and exemptions explain the current rules.

The calculation may change if the estate qualifies for additional allowances, exemptions or reliefs.

When might you have to pay inheritance tax yourself?

Receiving an inheritance doesn't normally make you personally responsible for inheritance tax. However, particular gifts, trust arrangements or unpaid liabilities can create exceptions.

You received a significant gift before someone died

Not every gift made within seven years of death creates an inheritance tax bill for the recipient.

Certain non-exempt gifts may first use up the deceased person's available inheritance tax nil-rate band. This can increase the tax payable by the estate without creating a separate bill for the recipient. However, if the total value of relevant chargeable gifts exceeds the available threshold, inheritance tax may become payable on particular gifts. The recipients of those gifts can be responsible for that tax.

The calculation depends on the timing and value of the gifts, available exemptions and earlier relevant transfers. Different rules can apply where the donor continued benefiting from the gifted asset. Taper relief may reduce inheritance tax on qualifying gifts made between three and seven years before death. It doesn't simply reduce the value of every gift. Records of a potentially relevant gift's date, value and circumstances can help establish its tax treatment.

Your inheritance involves a trust

Inheritance tax treatment varies according to the type of trust, how it was established and the assets involved.

Certain trusts may incur inheritance tax when assets are transferred into them, at ten-year anniversaries or when assets leave the trust.

Trustees may be responsible for reporting and paying these charges, although liability can fall on other parties in particular circumstances.

Being named as a trust beneficiary doesn't automatically make you personally responsible for the trust's inheritance tax.

The estate's inheritance tax wasn't fully paid

In certain circumstances, a beneficiary may become liable for inheritance tax that wasn't settled before an inheritance was distributed.

However, receiving an inheritance doesn't automatically make someone responsible for every outstanding tax debt of the estate.

Whether HMRC can recover tax from a particular recipient depends on the nature of the liability and the applicable legal rules.

If HMRC contacts you about unpaid inheritance tax, professional advice can help establish whether you are legally responsible.

When must inheritance tax be paid to HMRC?

Inheritance tax arising on death is generally due by the end of the sixth month after the month in which the person died.

If someone dies in January, payment is normally due by 31 July.

Interest can apply when tax remains unpaid after the deadline.

Executors usually need to arrange at least some inheritance tax payment before obtaining a grant of representation.

That can create difficulties where the estate includes valuable property but little accessible cash.

What happens if there isn't enough money available?

Alternative text: Model house beside property documents and a pen on a white desk.

An estate may include a valuable house without having enough cash to settle HMRC's bill immediately.

Depending on the circumstances, possible arrangements include:

1. Using estate savings: Available funds may be used towards the liability.
2. Direct payment: Participating financial institutions may transfer funds directly from the deceased's accounts to HMRC.
3. Payment by instalments: Inheritance tax attributable to certain qualifying assets, such as property, may be paid in ten annual instalments rather than one lump sum.
4. Other funding arrangements: Additional options may require professional advice.

For qualifying instalment arrangements, the first payment is normally due at the usual inheritance tax deadline. Interest may apply to subsequent payments, although specific assets and reliefs can have different rules.

Any outstanding tax generally becomes payable when the relevant asset is sold.

HMRC's guidance on paying inheritance tax explains the deadlines, payment methods and available arrangements.

What about inheritance tax on pensions?

Pension benefits can require separate consideration because payments following death may be governed by pension scheme rules rather than the deceased person's will.

The rules for inherited pensions will change for deaths occurring on or after 6 April 2027.From that date, most unused pension funds and pension death benefits will be included when calculating inheritance tax, subject to specified exclusions. Personal representatives will generally be responsible for reporting and paying inheritance tax attributable to relevant pension benefits. Beneficiaries may also be liable in certain circumstances, while pension scheme administrators will have specific information-sharing and payment-related obligations.

The change doesn't mean every inherited pension will attract inheritance tax. The outcome depends on the estate's value, available exemptions and the type of pension benefits involved. HMRC's technical guidance on inheritance tax and pensions explains the reforms. Further implementation guidance is expected ahead of April 2027. Anyone dealing with a substantial pension inheritance should consider the rules applying at the date of death and seek appropriate professional advice.

How can inheritance tax planning help clarify future liabilities?

The amount an estate might owe can influence decisions made before death. Reviewing your estate may involve checking property values, existing wills, available exemptions, lifetime gifts and the potential inheritance tax treatment of your assets.

At Maplebrook Wills, our inheritance tax planning services can help you understand the available options and consider how inheritance tax may affect your estate. We can explain the arrangements we offer, while the suitability and tax implications of each option depend on your individual circumstances.

Who pays inheritance tax when an estate is settled?

For most estates, the executor or administrator arranges inheritance tax payment from the deceased person's assets before beneficiaries receive their inheritance.

The position can differ for substantial lifetime gifts, trusts, certain pension benefits and tax left unpaid during administration.

If you're reviewing your estate arrangements or have concerns about potential inheritance tax liabilities, you can get in touch with our team to discuss the options relevant to your circumstances.

This article provides general information about UK inheritance tax, with particular reference to estate administration in England and Wales. It does not constitute personalised legal, tax or financial advice. Payment responsibilities, exemptions and liabilities depend on individual circumstances and the law applicable at the relevant time. Seek advice from an appropriately qualified professional before making significant decisions.