How much Inheritance Tax is paid on large estates?

At Towerstone, we provide specialist Inheritance Tax accountancy services for families and executors. We have written this article to explain common outcomes and what affects the bill, helping you make informed decisions.

From experience, when people ask about inheritance tax on large estates, they are rarely just asking for percentages. What they are really asking is how bad does it get, how much will HMRC actually take, and whether the stories they have heard about families losing huge sums are true. In my opinion, inheritance tax has earned its reputation as one of the most disliked UK taxes not because it is always high, but because it is often poorly understood and badly planned for.

Large estates do tend to pay more inheritance tax, sometimes very substantial amounts, but the headline 40 percent rate is rarely the full story. Allowances, reliefs, exemptions, and planning decisions made years earlier all play a role in determining the final bill.

In this article, I am going to explain how inheritance tax applies to large estates in the UK, what “large” actually means in practice, how much tax is typically paid, and what factors push bills higher or lower. Everything here is based on UK rules, current thresholds, and what I see in real estates when they are reviewed after death.

By the end, you should have a clear picture of how inheritance tax works at the upper end of the scale, why some estates pay eye watering sums, and why others with similar headline values pay far less.

What counts as a large estate for inheritance tax?

There is no official definition of a “large estate” in UK tax law. However, from experience, estates usually start to feel large from an inheritance tax perspective once they significantly exceed the available allowances.

As a reminder, the main inheritance tax allowances are:

The standard nil rate band of £325,000 per person

The residence nil rate band of up to £175,000 per person, where conditions are met

For a married couple or civil partners, these allowances can usually be combined, giving a potential total of up to £1 million.

In practical terms, I would usually describe an estate as large for inheritance tax purposes if:

It exceeds £1 million for a couple

It exceeds £500,000 for an individual

It includes valuable property, investments, or business interests

From experience, many estates that people consider “comfortable but not wealthy” now fall into this category simply due to property price growth.

The basic inheritance tax rate on large estates

The headline inheritance tax rate in the UK is 40 percent.

This rate applies to the value of the estate above the available allowances. It does not mean the entire estate is taxed at 40 percent, but the portion above the thresholds is.

For example, if an estate is worth £1.5 million and the available allowances total £1 million, inheritance tax at 40 percent applies to the remaining £500,000, resulting in a tax bill of £200,000.

In my opinion, this is where fear often sets in. A six figure tax bill feels alarming, particularly when it has to be paid before assets such as property can be fully distributed.

How much inheritance tax do very large estates pay?

For very large estates, inheritance tax bills can run into millions.

From experience, estates valued at:

£2 million may face inheritance tax of several hundred thousand pounds

£5 million estates may face tax bills well into seven figures

£10 million plus estates can pay multiple millions in inheritance tax

However, these figures assume little or no planning and limited use of reliefs.

In reality, the amount paid varies widely depending on how the estate is structured and what assets it contains.

The impact of the residence nil rate band taper

One of the most important factors affecting large estates is the tapering of the residence nil rate band.

The residence nil rate band starts to be withdrawn once the estate exceeds £2 million. For every £2 above £2 million, £1 of the residence nil rate band is lost.

In practice, this means:

Estates just above £2 million may lose part of the allowance

Estates significantly above £2 million may lose it entirely

From experience, this often catches families off guard. They assume they will benefit from the residence nil rate band because they have children, but the size of the estate removes it.

In my opinion, this taper is one of the harshest elements of the inheritance tax system for larger estates.

Why large estates often pay the full 40 percent

Large estates are more likely to pay the full 40 percent rate for several reasons.

Common factors include:

Estate value far exceeds all available allowances

Residence nil rate band fully tapered away

Limited lifetime gifting

High proportion of assets held in property or cash

Few qualifying reliefs

From experience, once allowances are exhausted, inheritance tax becomes brutally simple. Forty percent of the excess goes to HMRC.

Inheritance tax is administered by HM Revenue and Customs, with policy and guidance published via GOV.UK.

How asset type affects inheritance tax on large estates

Not all large estates are taxed equally. The composition of the estate makes a huge difference.

Property heavy estates

Estates dominated by residential property often face higher inheritance tax bills because:

Property is fully chargeable

Reliefs are limited

Liquidity can be an issue

From experience, property rich and cash poor estates are the most stressful for families, because the tax bill arrives before assets can easily be sold.

Investment portfolios

Investment portfolios are fully chargeable to inheritance tax, but they offer more flexibility.

In my opinion, investment portfolios are easier to plan around because they can be:

Gifted during lifetime

Placed into trusts

Invested in assets qualifying for relief

Business and agricultural assets

This is where the picture can change dramatically.

Business Property Relief and Agricultural Property Relief can reduce inheritance tax on qualifying assets by up to 100 percent.

From experience, large estates that include qualifying businesses or farms often pay far less inheritance tax than expected, sometimes none at all on those assets.

How Business Property Relief reduces inheritance tax

Business Property Relief applies to certain business assets, including:

Shares in unlisted trading companies

Interests in partnerships

Certain AIM listed shares

Where conditions are met, the value of these assets may be reduced by 50 percent or 100 percent for inheritance tax purposes.

In practice, this can remove millions from the taxable estate.

In my opinion, this is one of the most powerful reliefs available, but it comes with risk and strict conditions.

Agricultural Property Relief and large estates

Agricultural Property Relief works in a similar way for farmland and farm buildings.

From experience, estates with significant agricultural land often pay far less inheritance tax than estates of similar value made up of residential property.

This is one reason inheritance tax outcomes can look unfair to those unfamiliar with the reliefs.

Lifetime gifts and large estates

Large estates that make significant lifetime gifts often reduce their inheritance tax bill substantially.

Lifetime gifts are usually treated as potentially exempt transfers. If the person survives seven years, the value falls outside the estate.

From experience, wealthy families who plan early and gift gradually often reduce their taxable estate by millions over time.

In my opinion, timing is everything. Late gifting rarely produces the same results.

Trusts and large estate inheritance tax bills

Trusts are often used by large estates, but they are not a magic solution.

Placing assets into trust can:

Remove future growth from the estate

Use up nil rate bands during lifetime

Shift tax from death to lifetime

However, trusts can also create:

Immediate inheritance tax charges

Ongoing ten year charges

Administrative complexity

From experience, trusts work best when combined with other strategies, not used in isolation.

How much tax is actually paid in practice?

Based on estates I have seen, very roughly:

Estates just above the threshold may pay 10 to 20 percent of total value in tax

Larger estates with poor planning may approach an effective rate close to 40 percent

Well planned large estates may pay far less, sometimes under 20 percent overall

The difference is rarely about loopholes. It is about understanding and using the rules correctly.

Liquidity problems and forced sales

One of the biggest practical issues for large estates is liquidity.

Inheritance tax is usually payable within six months of death. If the estate is tied up in property or illiquid assets, families may be forced to sell quickly or borrow to pay the tax.

From experience, this is where planning failures hurt the most.

Can large estates reduce inheritance tax legally?

Yes, but not overnight.

In my professional opinion, effective inheritance tax planning for large estates usually involves:

Early lifetime gifting

Use of pensions as inheritance vehicles

Careful use of relief qualifying assets

Trust planning where appropriate

Regular review as values change

There is no single strategy that works for everyone.

Common myths about inheritance tax on large estates

Some of the most common myths I hear include:

Large estates always lose nearly half to tax

Nothing can be done once wealth is built

HMRC will seize assets

Planning is avoidance

From experience, these beliefs cause unnecessary fear and inaction.

Should inheritance tax dictate how wealth is built?

In my opinion, no.

Inheritance tax should be planned for, but it should not dominate every financial decision. Many strategies that reduce inheritance tax also involve giving up control, liquidity, or flexibility.

The goal should be balance.

Key Takeaways

So, how much inheritance tax is paid on large estates?

Sometimes a great deal. Sometimes far less than expected.

Large estates often pay substantial inheritance tax bills, particularly where property values are high and planning is limited. However, allowances, reliefs, lifetime gifts, and asset structure all play a decisive role in the final figure.

From experience, the biggest difference between estates that pay extreme amounts and those that do not is not wealth, but preparation.

If there is one thing I would leave you with, it is this. Inheritance tax on large estates is not random, but it is unforgiving of inaction. Understanding the rules early and revisiting them regularly is what turns a potentially devastating tax bill into a manageable one.

If you would like to explore related Inheritance Tax guidance, you may find What expenses can be deducted from the estate value and What forms do I need to complete for HMRC when someone dies useful. For broader inheritance tax guidance, visit our inheritance tax hub.