Death duties – or inheritance tax, as they’re now known – have been a cause of curiosity and concern in the UK for over a century. But what are death duties, and how have they changed with the name? Here’s a short history of the “death duty” tax, and an overview of what it looks like currently.
A brief history of death duties
The earliest version of death duties can be traced back to 1694. At the time, probate duty was a tax on personal property from wills. Its name comes from the Latin “probare” (to prove), because the wills had to be proved in court before they could be taxed.
The death duties UK citizens have paid over the centuries have been used for a variety of purposes – for example, the war against Napoleon was funded in part by the 1796 estate tax. The death duty tax was introduced in 1894, with the intention of repaying a £4 million government deficit. This is the version that’s most similar to modern inheritance tax.
Death duties were renamed as the capital transfer tax in 1975, and since 1986 they have been known as inheritance tax. Changes to inheritance tax laws, including the minimum threshold for an estate and how exemptions work, were introduced in 2007 and 2017.
What are death duties in the UK like now?
Currently, inheritance tax is payable at a rate of 40% on estates worth £325,000 or more, with some exceptions (see below).
Before you die, you have a tax-free gift allowance of £3,000 per tax year. Anything more is subject to inheritance tax if you die within seven years of giving the money away.
Various other exceptions to death duties apply if the gifts are being given to support family members who are studying or getting married, or if money is being donated to charity. You can find out more about these in our guide to inheritance tax exemptions.
What is the death duty threshold?
No inheritance tax needs to be paid on any estate worth less than £325,000. If one half of a married couple dies and their estate is worth less than the minimum death duty tax threshold, their tax-free allowance (called a nil-rate balance) rolls over to their surviving partner, who will be able to leave a tax-free estate worth up to £650,000.
As of 2017, there is an additional allowance for property, which you can read more about in our guide to the new inheritance tax threshold. The new laws apply to property that’s being passed down to a direct descendant of the person who’s died, and will continue to change until the tax year 2020-2021.
How much is death duty?
Any estate worth more than the threshold is subject to death duties. UK inheritance tax is currently charged at 40% of the total value of the estate, or 36% if more than 10% of the estate was left to charity.
Need a hand with death duties?
If you’re settling the estate of someone who has died, a good estate administration service can help you make sure you pay the right amount, on time – and no more. Find out about our estate administration and probate service here, or call us on 0800 054 9896 to speak to an advisor.