IHT (or inheritance tax to give it its full name) is a tax which is paid after you die if the value of your estate is greater than £300,000. This £300,000 figure is known as the inheritance tax threshold. Although this figure is correct at the time of writing, it should be noted that it is reviewed each year and is usually increased slightly each time.

Your "estate" is made up of everything you own: your house, money, personal possessions, shares, investments, etc, plus any life insurance that pays out as a result of your death.

From this you can deduct any debts - for example: credit card debts, loans that have not been repaid in full, funeral expenses, the balance of your mortgage - and the resulting figure is the net value of your estate.

If this net value of your estate is over £300,000 then inheritance tax is due at a rate of 40% on the amount over £300,000. So if, for example, your estate was worth £400,000 you would have to pay IHT of 40% on £100,000 - i.e. £40,000.

Anything you leave to your spouse is exempt from IHT. So, if a man had a net estate of £400,000 but left it all to his wife, then no IHT would be payable. However, when she died then, assuming she had not remarried, IHT would be due on any amount over the inheritance tax threshold at the time.

Inheritance tax was introduced as a temporary measure during the Napoleonic wars to help fund the costs of fighting the French. At the time it affected only the very rich. Even as recently as 1997, only 1 in 40 estates were liable for IHT. But today that figure is nearer to 1 in 6.

This is mainly because of the rapid rise in house prices over recent years. Nowadays, even a fairly modest house is likely to be worth over £300,000 in many parts of the UK - thus meaning that more and more people are being caught by inheritance tax than ever before.

It has been said that IHT is a voluntary tax. That is because, with the correct advice and planning, and the right type of wills, it is possible to organise things so that the inheritance tax bill is greatly reduced or even removed altogether.

To find out more about how to make a will that helps avoid inheritance tax, please see our page about Avoiding IHT, or click here to talk to a professional will-writer about ways in which you may be able to minimise your inheritance tax bill.