TL;DR
Inheritance tax (IHT) is charged at 40% on the value of your estate above the nil-rate band of PS325,000. A residence nil-rate band of PS175,000 also applies when a home passes to direct descendants, giving couples a combined threshold of PS1 million. Gifts made more than seven years before death are normally exempt.
Last reviewed: 10 May 2026
What Is Inheritance Tax?
Inheritance tax (IHT) is a charge levied on the taxable estate of a person who has died, and in some circumstances on gifts made during a person's lifetime. The legal basis for IHT in the United Kingdom is the Inheritance Tax Act 1984 (IHTA 1984), which consolidated earlier capital transfer tax legislation.
IHT applies to estates of individuals who are domiciled, or deemed domiciled, in the UK. It also applies to UK-situated assets regardless of where the deceased was domiciled. HMRC administers IHT and publishes authoritative guidance at gov.uk/inheritance-tax.
In the 2026/27 tax year, IHT is charged at 40% on the portion of a chargeable estate that exceeds the available nil-rate band. A reduced rate of 36% applies where at least 10% of the net estate is left to a qualifying charity.
How Inheritance Tax Is Calculated in 2026
The calculation starts with the gross estate - the total market value of all assets at the date of death, including property, cash, investments, personal possessions and any lifetime gifts made within seven years of death. From that figure you deduct allowable liabilities (mortgages, debts and funeral expenses) and reliefs to reach the chargeable estate.
Nil-rate bands in 2026/27:
| Band | 2026/27 Amount | Conditions |
|---|---|---|
| Nil-rate band (NRB) | PS325,000 | Applies to all estates |
| Residence nil-rate band (RNRB) | PS175,000 | Home passes to direct descendants |
| Transferable NRB (spouse) | Up to PS325,000 | Unused band from deceased spouse |
| Transferable RNRB (spouse) | Up to PS175,000 | Unused RNRB from deceased spouse |
Example: A married couple where one spouse died previously without using their NRB. The survivor's estate is valued at PS900,000 and includes the family home worth PS400,000 left to adult children. Available bands: PS325,000 (own NRB) + PS325,000 (transferred NRB) + PS175,000 (own RNRB) + PS175,000 (transferred RNRB) = PS1,000,000. IHT due: nil.
If the same estate were PS1,200,000, the chargeable amount would be PS200,000 and IHT would be PS80,000.
Key Exemptions and Reliefs in 2026
Several reliefs can significantly reduce or eliminate an IHT liability:
- Spouse or civil partner exemption: Transfers between UK-domiciled spouses and civil partners are fully exempt under section 18 IHTA 1984. No cap applies.
- Annual exemption: PS3,000 per tax year can be gifted free of IHT. Unused allowance carries forward one year only, giving a maximum of PS6,000 in a single year.
- Small gifts exemption: Up to PS250 per person per year to any number of individuals, but not combined with the annual exemption for the same recipient.
- Wedding gifts: PS5,000 from a parent, PS2,500 from grandparents, PS1,000 from anyone else, provided the gift is made before the marriage.
- Normal expenditure out of income: Regular gifts from surplus income (not capital) can qualify as exempt if they form part of a regular pattern. HMRC's form IHT403 documents these gifts.
- Business property relief (BPR): 100% relief on qualifying business assets and AIM shares held for at least two years. 50% relief applies to controlling shareholdings in listed companies and certain land/buildings used in a business.
- Agricultural property relief (APR): 100% relief on agricultural land and buildings in occupation for at least two years (or owned for seven years).
- Charity exemption: Gifts to UK-registered charities are fully exempt and, where a bequest of at least 10% of the net estate goes to charity, the IHT rate on the remainder falls from 40% to 36%.
How to Apply: Completing IHT Returns and Paying the Tax
IHT must be paid before probate is granted. The personal representatives (executors) are responsible for completing HMRC's estate return and paying any tax due. The process for 2026 is as follows:
- Value the estate: Obtain professional valuations for property, investments and any business assets. HMRC may challenge values it considers too low.
- Identify chargeable gifts: Gather records of all gifts made in the seven years before death. Taper relief reduces the IHT charge on gifts made between three and seven years before death.
- Complete IHT400: This is the main IHT account. Supplementary schedules (IHT401 to IHT436) cover specific assets. Form IHT205 can be used for excepted estates - typically those below the threshold and with no complex assets. All forms are available at gov.uk.
- Pay IHT before probate: At least some IHT must be paid before HMRC will issue a clearance reference. Banks may release funds from the deceased's accounts directly to HMRC under the Direct Payment Scheme before probate is granted.
- Apply for probate: Once a payment reference is obtained, the personal representatives can proceed with the probate application.
IHT on land and buildings can be paid in ten equal annual instalments, with interest accruing from the due date on each unpaid instalment.
Payment deadline: IHT is due six months after the end of the month in which death occurred. Interest accrues at the HMRC official rate from the due date.
Taper Relief and the Seven-Year Rule
Potentially exempt transfers (PETs) are gifts to individuals that become fully exempt from IHT if the donor survives seven years from the date of the gift. If the donor dies within seven years, the gift is brought back into the estate and taxed at the marginal rate applicable to that portion of the cumulative chargeable transfers.
Taper relief reduces the tax payable on gifts made between three and seven years before death. It does not reduce the value of the gift - only the tax due on it:
| Years between gift and death | Tax rate on gift |
|---|---|
| 0-3 years | 40% |
| 3-4 years | 32% |
| 4-5 years | 24% |
| 5-6 years | 16% |
| 6-7 years | 8% |
| 7+ years | Exempt |
Common Scenarios and Edge Cases
Downsizing addition: If the deceased sold or downsized their home after 8 July 2015 and the smaller property is below PS175,000 in value, a downsizing addition may preserve the RNRB that would otherwise be lost. The rules are complex and require form IHT435.
Non-domiciled spouses: Where the deceased spouse was UK-domiciled but the surviving spouse is not, the spousal exemption is capped at PS325,000 (equal to the nil-rate band) rather than being unlimited. An election can be made for the surviving non-domiciled spouse to be treated as UK-domiciled for IHT purposes.
Trusts and the 10-year charge: Assets held in discretionary trusts are subject to a periodic charge of up to 6% of the trust value every 10 years, and an exit charge when assets leave the trust. This is governed by chapter III of part III of the IHTA 1984.
Foreign property: UK-domiciled individuals pay IHT on their worldwide assets. Property situated abroad may also attract tax in the country where it is located, and double taxation treaties may apply to prevent the same asset being taxed twice.
Jointly owned property: Property owned as joint tenants passes automatically to the surviving owner outside the estate. Property owned as tenants in common passes according to the will or intestacy rules and forms part of the chargeable estate.
Time Limits and Key Deadlines
| Event | Deadline |
|---|---|
| IHT payment due | 6 months after end of month of death |
| IHT400 submission | 12 months after end of month of death |
| Corrective account (if estate changes) | Within 6 months of discovery |
| HMRC enquiry window | Up to 4 years for innocent error, 20 years for fraud |
| Instalment payments (land/buildings) | 10 equal annual instalments |
Common Mistakes That Lead to HMRC Enquiries
- Undervaluing property: HMRC has district valuer access and challenges below-market valuations. Obtain a RICS-qualified surveyor report.
- Failing to trace all assets: Dormant bank accounts, forgotten pension death benefits and share certificates held in paper form are frequently missed.
- Mis-recording gifts: Without a gift log, it is difficult to prove that gifts were made from income rather than capital, or that the seven-year clock started on a particular date.
- Assuming pensions are always exempt: Lump sum death benefits from defined benefit schemes may form part of the estate depending on how they are held. The pension IHT changes announced in the Autumn Budget 2024 - bringing most unused pension pots into scope from April 2027 - should be monitored via HMRC guidance as implementation proceeds.
- Overlooking jointly owned business assets: Business property relief applies to the business interest, not to assets used in the business but owned personally unless specific conditions are met.
Disclaimer: Kaeltripton.com is an independent editorial publisher, not authorised or regulated by the FCA. Content is for informational purposes only and does not constitute financial, legal or tax advice. Always consult a qualified solicitor, financial adviser or tax professional before making decisions.
Frequently Asked Questions
What is the inheritance tax threshold for 2026/27?
The basic nil-rate band is PS325,000 per person. A residence nil-rate band of PS175,000 applies when a qualifying home passes to direct descendants such as children or grandchildren. A surviving spouse or civil partner can inherit any unused portion of these bands from the first to die, giving a potential combined threshold of PS1 million for a couple where both bands are fully available.
Do I pay inheritance tax on gifts made before death?
Gifts to individuals (potentially exempt transfers) become fully exempt if the donor survives seven years from the date of the gift. If death occurs within three years, the full 40% rate applies to the value of the gift above the nil-rate band. Between three and seven years, taper relief reduces the effective rate. Gifts made from surplus income under the normal expenditure exemption can be exempt immediately if properly documented.
Is a surviving spouse exempt from inheritance tax?
Transfers between UK-domiciled spouses and civil partners are fully exempt from IHT under section 18 of the Inheritance Tax Act 1984. There is no cap on the exemption for transfers between UK-domiciled spouses. Additionally, any nil-rate band and residence nil-rate band unused on the first spouse's death transfers to the surviving spouse's estate, effectively doubling the available threshold.
How does the residence nil-rate band work?
The residence nil-rate band (RNRB) of PS175,000 is available where a qualifying residential property - one that has been the deceased's home at some point - is included in the estate and left to direct descendants such as children, stepchildren or grandchildren. The RNRB is tapered by PS1 for every PS2 by which the net estate exceeds PS2 million, so it is fully withdrawn where estates exceed PS2.35 million (or PS2.7 million for couples using both RNRBs).
What happens if I cannot pay the inheritance tax before probate?
HMRC requires at least part of the IHT to be settled before issuing a clearance code needed for the probate application. Executors can ask banks holding the deceased's accounts to pay HMRC directly under the Direct Payment Scheme, without waiting for probate. For estates with significant property, IHT on land and buildings can be paid in ten annual instalments, though interest accrues on unpaid amounts from the due date.
How We Verified This Information
All figures in this article were verified against HMRC's published IHT threshold tables and the gov.uk inheritance tax guidance as of May 2026. Statutory references were checked against the Inheritance Tax Act 1984 as amended and available via legislation.gov.uk. Where the article refers to future changes (pension IHT), we have cited only announced policy and linked to HMRC's consultation pages.