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The most unfair tax? Why more families are facing an unexpected Inheritance Tax bill

Writer: Steve BishSteve Bish
Mar 6

Steve Bish, Founder of S Bish Estate Planning writes,
Steve Bish, Founder of S Bish Estate Planning writes,

With 20 years experience in Estate Planning I’ve seen first hand how the loss of a loved one can turn our lives upside down — and nothing adds insult to injury like an unexpected Inheritance Tax bill. The latest budget has done nothing to alleviate this burden, leaving even more bereaved families having to pay what many consider the most hated tax around.

With property prices on the rise, estates that once wouldn’t have fallen under this tax are now caught in its net. And to make matters worse, the tax has to be paid before you can even apply for a Grant of Probate or Letters of Administration. This leaves families scrambling to raise cash at a time when they’re already hurting.

 

What does this tax mean for you?

 

At the moment, Inheritance Tax applies to estates worth over £325,000, with 40% charged on the amount above that threshold. Given the current housing market, more families than ever are being unexpectedly hit with this tax.

There are some exceptions:

  • If everything is left to a spouse or civil partner, no tax is due.

  • A residence allowance of £175,000 is available if the family home is passed on to children or grandchildren.

  • Any unused tax allowance from a late spouse or civil partner can be carried forward, effectively doubling the threshold.

  • Leaving 10% or more of the estate to charity reduces the tax rate from 40% to 36%.

Despite many hoping for some relief, this year’s budget left the nil rate bands (NRB) unchanged, meaning thousands more families face this steep tax bill when they least expect it.


 

Understanding your tax bill

 

Calculating Inheritance Tax can be overwhelming. It’s not just about the money in the bank; it includes everything of value that the deceased owned, such as:

  • Property

  • Cars

  • Jewellery & art

  • Shares & investments

  • Cash gifts given in the seven years before death

Every item must be valued as of the date of death, with the details accurately reflected on HMRC forms.

 

When and how to pay Inheritance Tax

 

HMRC requires that Inheritance Tax is paid at least 15 working days before you apply for a Grant of Probate. Initially, you must secure an Inheritance Tax reference number—a process that can take up to three weeks. The final deadline for tax payment is the end of the sixth month after death, beyond which interest charges kick in.

 

Options when funds are tight

 

Many families don’t have ready cash available, as banks and investment companies often won’t release funds until probate is granted—and probate can’t be issued until the tax is paid. Here are a few strategies that might help:

  • Direct Payment: Ask the deceased’s bank to pay HMRC directly from their account

  • British Government Stocks: These can sometimes be used to cover the tax

  • Instalment Plans: If the estate includes assets like property or shares, you might be able to pay the tax in instalments over ten years. (Keep in mind, interest will apply on the outstanding balance.)

This instalment option can be especially helpful if you’re inheriting a family home that you plan to keep.

 

We’re here to help

 

We know how overwhelming this process can be — losing someone is hard enough without the added financial pressure. If you’re facing an Inheritance Tax bill and need some advice or just someone to talk to about your options, please don’t hesitate to reach out. We’re in this together.

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