Genome-wide association studies have detected many loci underlying susceptibility to disease, but most of the genetic factors that contribute to disease susceptibility remain unknown. Here we provide evidence that part of the 'missing heritability' can be explained by an overestimation of heritability. We estimated the heritability of 12 complex human diseases using family history of disease in 1,555,906 individuals of white ancestry from the UK Biobank. Estimates using simple family-based statistical models were inflated on average by ∼47% when compared with those from structural equation modeling (SEM), which specifically accounted for shared familial environmental factors. In addition, heritabilities estimated using SNP data explained an average of 44.2% of the simple family-based estimates across diseases and an average of 57.3% of the SEM-estimated heritabilities, accounting for almost all of the SEM heritability for hypertension. Our results show that both genetics and familial environment make substantial contributions to familial clustering of disease.