Inheritance Tax UK 2026: Thresholds, Rates & How to Reduce Your Bill

Chandraketu Tripathi

Finance Editor, Kaeltripton

Published 5 Apr 2026

Last reviewed 4 May 2026

✓ Fact-checked

By Chandraketu Tripathi | Updated April 2026

Inheritance Tax (IHT) is charged at 40% on the value of your estate above the nil-rate band threshold of £325,000. If you own your home and pass it to direct descendants, an additional Residence Nil-Rate Band of £175,000 applies, giving a potential combined threshold of £500,000. Married couples and civil partners can combine their allowances — giving a potential total threshold of £1 million for a couple who own a property and plan to leave it to their children. With UK house prices continuing to rise, IHT affects an increasing number of estates. This guide explains the thresholds, exemptions, and legal ways to reduce your IHT bill.

Key Facts 2026

IHT rate: 40% on estate above threshold | Nil-rate band: £325,000 (frozen since 2009 until at least April 2030) | Residence nil-rate band: £175,000 (direct descendants) | Married couple combined: up to £1 million

Inheritance Tax Thresholds UK 2026/27

Allowance	Amount	Notes
Nil-rate band (NRB)	£325,000	No IHT on first £325,000 of estate; frozen until April 2030
Residence nil-rate band (RNRB)	£175,000	Additional allowance when main home passes to direct descendants (children, grandchildren)
Single person maximum threshold	£500,000	NRB £325k + RNRB £175k = £500k (must own a home and leave to direct descendants)
Married couple / civil partner maximum	£1,000,000	Both allowances transferred on first death; combined = NRB £650k + RNRB £350k = £1m
RNRB taper	Reduces by £1 for every £2 over £2m	Estates over £2m lose RNRB gradually; fully gone at £2.35m for single; £2.7m for couple
IHT rate	40%	On the value of the estate above the available threshold

IHT Calculation Example UK 2026

Example: married couple with a house worth £450,000 and savings/investments of £200,000 — total estate £650,000. When the second spouse dies and leaves everything to children: combined NRB = £650,000; RNRB applied to the house = £350,000. Wait — in this example, the estate is £650,000. Available threshold: NRB £650,000 (both transferred) + RNRB £350,000 (both transferred) = £1,000,000 total. As £650,000 is below £1,000,000, there is no IHT to pay. A single person with the same £650,000 estate: threshold = NRB £325,000 + RNRB £175,000 = £500,000. Taxable estate = £650,000 - £500,000 = £150,000. IHT = £150,000 × 40% = £60,000.

IHT Exemptions and Allowances UK 2026

Exemption	Amount	Detail
Spouse/civil partner exemption	Unlimited	Transfers between spouses and civil partners are completely exempt from IHT
Annual gift allowance	£3,000 per year	Can give up to £3,000/year free of IHT; unused allowance carries forward one year (max £6,000)
Small gifts allowance	£250 per person per year	Up to £250 to any number of individuals — cannot combine with annual allowance for same person
Wedding/civil partnership gifts	£5,000 (parent); £2,500 (grandparent); £1,000 (other)	Tax-free gifts on marriage
Gifts from normal expenditure	Unlimited (if conditions met)	Regular gifts from surplus income that don't reduce standard of living — requires evidence
Charitable gifts	Unlimited	Gifts to UK-registered charities are fully exempt; leaving 10%+ to charity reduces IHT rate to 36%
Business Property Relief (BPR)	50% or 100%	Business assets may qualify for 50% or 100% relief — specialist advice essential
Agricultural Property Relief (APR)	50% or 100%	Agricultural land and property — specialist advice essential

The 7-Year Gift Rule UK — How It Works

Gifts made to individuals during your lifetime are known as Potentially Exempt Transfers (PETs). If you survive 7 years after making a gift, it falls completely outside your estate for IHT purposes. If you die within 7 years, the gift may be added back into your estate and taxed — but taper relief reduces the tax owed: 0-3 years: 40% IHT; 3-4 years: 32%; 4-5 years: 24%; 5-6 years: 16%; 6-7 years: 8%; 7+ years: 0%. Gifts between spouses are always exempt regardless of timing. Gifts to charities are always exempt. Gifts from the annual exemption (£3,000/year) are immediately exempt. The 7-year rule applies to all other gifts of any amount to individuals.

Legal Ways to Reduce Inheritance Tax UK 2026

Give away assets early and survive 7 years — PETs fall out of your estate if you survive 7 years from the gift date
Use annual gift allowances — give £3,000/year (£6,000 if last year's unused) plus £250 to any number of individuals each year
Leave money to charity — charitable legacies are IHT-exempt; leaving 10%+ of your net estate to charity reduces IHT rate from 40% to 36% on the rest
Write life insurance in trust — a life insurance payout in trust is outside your estate for IHT purposes; it avoids both IHT and probate delays
Pension planning — pension funds are typically outside your estate for IHT (though this is changing from April 2027 — take advice)
Business Property Relief (BPR) — certain business assets qualify for 50-100% IHT relief; AIM-listed shares may also qualify after 2 years
Nil-rate band transfer — ensure unused NRB and RNRB from a first spouse's death is formally transferred to the surviving spouse's estate

Frequently Asked Questions

What is the inheritance tax threshold UK 2026?

The basic nil-rate band is £325,000 per person, frozen until at least April 2030. An additional Residence Nil-Rate Band of £175,000 applies when a main home passes to direct descendants (children or grandchildren). Combined, a single person can pass £500,000 free of IHT. A married couple or civil partnership can combine both partners' allowances, giving a potential total IHT-free threshold of £1,000,000.

What is the 7-year rule for inheritance tax UK?

Gifts made to individuals are Potentially Exempt Transfers (PETs). If you survive 7 years after making the gift, it is completely outside your estate for IHT. If you die within 7 years, the gift may be subject to IHT — but taper relief reduces the rate for gifts made 3-7 years before death (32%, 24%, 16%, 8% in 3-4, 4-5, 5-6, 6-7 year bands respectively). The 7-year clock starts on the date the gift was made.

Does IHT apply to spouses UK?

No — transfers between spouses and civil partners are completely exempt from Inheritance Tax regardless of amount. Additionally, any unused nil-rate band from the first spouse to die is automatically transferred to the surviving spouse, potentially doubling the threshold. The same applies to the Residence Nil-Rate Band.

What happens to pensions and IHT UK 2026?

Pension funds are currently outside your estate for IHT purposes, making them a valuable IHT planning tool. However, from April 2027, unused pension funds are proposed to be included in your estate for IHT following the Autumn 2025 Budget announcement. This is a major change — if you have significant pension wealth, speak to a financial adviser urgently before the proposed April 2027 changes take effect.

Related Guides

Sources: HMRC, GOV.UK IHT thresholds, HM Treasury Autumn Budget 2025, MoneyHelper, Which?, MoneySavingExpert. Always seek independent financial advice for IHT planning.. Always compare before buying. April 2026.