Many people worry about the estate tax affecting the inheritance they pass along to their children, but it's not a reality most people will face. In 2025, the first $13,990,000 of an estate is exempt from federal estate taxes, up from $13,610,000 in 2024. Estate taxes are based on the size of the estate.
There is no federal inheritance tax. Inherited assets may be taxed for residents of Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Whether you may pay inheritance tax depends on the amount of the inheritance, your relationship to the decedent, and the state in which the decedent lived.
This means an individual can leave or gift to non-spouse beneficiaries $13,610,000 without having to pay federal transfer taxes. A married couple will be able to shield $27,220,000. 1 The maximum federal estate and gift tax rate remains at 40% for 2024.
IHT may have to be paid on the estate if it's worth more than the tax-free threshold of £325,000. This means that the first £325,000 of your estate is tax-free – the 40% tax only applies to any assets over this threshold.
In theory, you can gift as much money as you want to your children, but large gifts may be subject to tax (more on that later). The good news is that for the financial year 2024/25, every UK citizen has an annual tax-free gift allowance of £3,000.
IHT Exemption
Any gift that qualifies under this loophole is completely exempt from Inheritance Tax. If HMRC decides that the gift was larger than reasonable, the part that was reasonable is still exempt. The basic part of the exemption allows someone to maintain their spouse or civil partner.
Making a will to distribute your assets
Whether leaving assets to a spouse or civil partner, distributing assets to take advantage of tax-free allowances, or making gifts to charity, a valid will could help you to reduce or avoid Inheritance Tax altogether.
2. Annual Gift Exclusion: $19,000 Per Person. In 2025, you're allowed to give someone up to $19,000 per year without having to report it to the IRS.
If everyone agrees, you could sell or rent out the house together, as business partners. If the rental market is strong, or if you're inheriting a house that is paid off, it might make sense to lease the house to a reliable tenant. But consider the time and money required to own and operate a rental property.
The best way to avoid the inheritance tax is to manage assets before death. To eliminate or limit the amount of inheritance tax beneficiaries might have to pay, consider: Giving away some of your assets to potential beneficiaries before death. Each year, you can gift a certain amount to each person tax-free.
If the deceased gave you a gift in the 7 years before they died, it may be subject to IHT, and you should inform HMRC. If the inheritance is put into a trust and the trust does not or cannot pay the IHT, you may need to inform HMRC.
Federal Estate Tax Rates for 2025
To make things simple, if someone passes away in 2025 and their estate is worth $13.99 million or less, they don't need to worry about the federal estate tax. However, any estates worth more than that are taxed only on the amount that surpasses the $13.99 million threshold.
Inheritance checks are generally not reported to the IRS unless they involve cash or cash equivalents exceeding $10,000. Banks and financial institutions are required to report such transactions using Form 8300. Most inheritances are paid by regular check, wire transfer, or other means that don't qualify for reporting.
The U.S. has the fourth highest estate or inheritance tax rate in the OECD at 40 percent; the world's highest rate, 55 percent, is in Japan, followed by South Korea (50 percent) and France (45 percent). Fifteen OECD countries levy no taxes on property passed to lineal heirs.
There are four ways you can avoid capital gains tax on an inherited property. You can sell it right away, live there and make it your primary residence, rent it out to tenants, or disclaim the inherited property.
Can my parents give me £50,000 in the UK? Your parents can give you £50,000, but if they die in the next seven years you will have to pay tax up to 40pc. Take a look at our section on potentially exempt transfers for more information.
From this perspective, if you are inclined to give, you should gift as much as you can comfortably afford during your lifetime, while remaining aware of the available step-up in capital gain basis for inherited assets. So, gift your assets that have minimal gains and save your most appreciated assets for inheritance.
Bottom Line. California doesn't enforce a gift tax, but you may owe a federal one. However, you can give up to $19,000 in cash or property during the 2025 tax year and up to $18,000 in the 2024 tax year without triggering a gift tax return.
Another key difference: While there is no federal inheritance tax, there is a federal estate tax. The federal estate tax generally applies to assets over $13.61 million in 2024 and $13.99 million in 2025, and the federal estate tax rate ranges from 18% to 40%.
Do I need to declare cash gifts to HMRC? You don't need to inform HMRC of any small cash gifts you make, these are gifts under £250. You'll also not be required to declare any gifts made using your yearly £3,000 annual exemption. Anything over these amounts may be subject to tax and will need to be declared to HMRC.
From April 2026, inheritance tax relief for business and for agricultural assets would be capped at £1mn, with a new reduced rate of 20% being charged above that (rather than the standard inheritance tax rate of 40%). The tax would be payable in instalments over 10 years interest free.
The so-called “normal expenditure out of income” exemption lets savers give away unlimited sums of money without paying inheritance tax. In order to qualify, the gifts must come from income and form part of a regular pattern.
There's normally no Inheritance Tax to pay if either: the value of your estate is below the £325,000 threshold. you leave everything above the £325,000 threshold to your spouse, civil partner, a charity or a community amateur sports club.
There is no set amount you can have in your savings account before you need to pay tax.