Inheritance tax UK 2026: thresholds, rates, reliefs and how to reduce your bill

Chandraketu Tripathi

Finance Editor, Kaeltripton

Published 10 May 2026

Last reviewed 10 May 2026

✓ Fact-checked

Tax and Salary

TL;DR

Inheritance tax (IHT) is charged at 40% on the value of an estate above the available nil-rate band. The standard nil-rate band is £325,000; the residence nil-rate band adds up to £175,000 for qualifying estates passing to direct descendants. Assets left to a spouse or civil partner are exempt. The 7-year gifting rule allows gifts to be made free of IHT if the donor survives 7 years. Both nil-rate bands are frozen until April 2030.

Inheritance tax is charged on the value of a person's estate at death, plus certain gifts made in the 7 years before death, where the total exceeds the available nil-rate band. IHT is paid by the executor of the estate before assets can be distributed to beneficiaries. With both nil-rate bands frozen until April 2030 and rising property values, an increasing number of estates are subject to IHT - estimated at around 6-7% of all UK deaths generating an IHT charge, generating approximately £7 billion in revenue annually for HMRC.

IHT planning is a legitimate area of financial planning but requires careful navigation of complex rules on gifts, trusts, reliefs, and exemptions. This guide covers how IHT is calculated, the main exemptions and reliefs available, the 7-year gifting rules, and the key planning strategies. Always take regulated financial and legal advice before implementing IHT planning.

Key facts (2026)

Standard nil-rate band (NRB): £325,000 frozen until April 2030. Estates above this are charged IHT at 40% on the excess (HMRC).
Residence nil-rate band (RNRB): £175,000 frozen until April 2030, available where a qualifying residential property is inherited by direct descendants (children, grandchildren). Tapers at £2 for every £1 of estate above £2 million (HMRC).
Spouse or civil partner exemption: transfers between spouses and civil partners on death are fully exempt from IHT regardless of the amount, and the unused NRB of the first to die can be transferred to the survivor (HMRC).
7-year gift rule: gifts made more than 7 years before death are fully exempt from IHT. Gifts within 7 years of death are potentially exempt transfers (PETs) subject to taper relief from year 3 to year 7 (HMRC).
Annual exemptions: £3,000 per year in gifts can be made IHT-free (plus the previous year's unused allowance if unused). Small gift exemption: £250 to any number of individuals per year. Gifts on marriage: up to £5,000 from a parent, £2,500 from a grandparent, £1,000 from anyone else (HMRC).

How IHT is calculated

IHT is calculated on the chargeable estate: all assets owned at death (property, savings, investments, personal possessions, business interests) plus gifts made in the 7 years before death that exceed the annual gift exemptions, less allowable liabilities (mortgages, debts, funeral expenses). From the total, the available nil-rate band (£325,000 for a single person; up to £650,000 for a surviving spouse who inherited the first spouse's unused NRB) is deducted. If the estate includes a qualifying residential property passing to direct descendants, the residence nil-rate band of up to £175,000 (or up to £350,000 combined for a surviving spouse) is also deducted. IHT at 40% is then charged on the remaining taxable estate. A reduced rate of 36% applies where 10% or more of the net estate is left to qualifying charities.

The 7-year gifting rule and taper relief

Gifts made to individuals (other than exempt gifts) are called potentially exempt transfers (PETs). If the donor survives for 7 years after making the gift, the gift falls outside the estate entirely and is exempt from IHT. If the donor dies within 7 years, the gift is brought back into the estate for IHT calculation. Taper relief reduces the IHT charge on gifts made between 3 and 7 years before death: 20% reduction for gifts 3-4 years before death; 40% for 4-5 years; 60% for 5-6 years; 80% for 6-7 years. Note that taper relief reduces the tax on the gift, not the gift's value; and it only applies if the PET exceeds the nil-rate band. The annual gift exemption of £3,000 per year (plus the previous year's unused allowance) is outside the PET rules and is exempt immediately regardless of survival period. The small gift exemption of £250 to any individual per year also applies immediately.

Business Property Relief and Agricultural Property Relief

Business Property Relief (BPR) provides either 100% or 50% relief from IHT on qualifying business assets. The relief is 100% for: shares in an unquoted trading company; a business or an interest in a business; and assets used by a partnership or company in which the deceased was a partner or controlling shareholder. The relief is 50% for assets used in a business where the deceased had a minority interest and for land or buildings subject to a binding contract for sale. BPR requires the asset to have been owned for at least two years. Shares listed on AIM are treated as unquoted for BPR purposes, making AIM shares a common IHT planning vehicle. Agricultural Property Relief (APR) similarly provides relief for qualifying agricultural land and property. From April 2026, the government proposed to cap combined BPR and APR relief at £1 million at 100% relief, with assets above this threshold attracting 50% relief; check the current legislative position at gov.uk as this was subject to consultation and possible amendment during 2025.

The spouse exemption and NRB transfer

All assets left to a surviving spouse or civil partner on death are exempt from IHT, regardless of the value. Additionally, any unused nil-rate band from the first spouse's death can be transferred to the survivor. If the first spouse's full NRB was unused at their death (because everything passed to the survivor), the survivor's estate effectively has a NRB of up to £650,000 plus potentially up to £350,000 in RNRB. This means a married couple can together pass up to £1 million free of IHT to direct descendants via their combined NRBs and RNRBs, subject to conditions. The RNRB tapers away at £2 for every £1 of estate above £2 million, meaning very large estates see reduced benefit from the RNRB. The NRB transfer is not automatic; it must be claimed by the executor of the surviving spouse's estate by completing the relevant form and providing evidence of the first spouse's nil-rate band usage.

Life insurance and IHT planning

Life insurance policies written in trust are a common IHT planning tool. A policy written in trust sits outside the estate; the proceeds are paid directly to the beneficiaries without going through probate and without forming part of the estate for IHT. A whole-of-life policy written in trust can be used to pre-fund an anticipated IHT liability, ensuring beneficiaries receive an amount sufficient to pay the tax bill without having to sell estate assets. The premiums paid into the policy are potentially exempt from IHT under the gifts from income exemption, provided they are paid regularly from income (not capital) and do not affect the donor's standard of living. Seek regulated financial advice on policy selection and trust structuring; this is an area where professional advice pays for itself.

Related guides

Frequently asked questions

What is the IHT threshold in 2025/26?

The standard nil-rate band is £325,000 for an individual. A surviving spouse or civil partner can inherit the unused NRB from their deceased partner, giving a combined NRB of up to £650,000. Where a qualifying residential property passes to direct descendants, the residence nil-rate band adds up to £175,000 per person (or £350,000 combined for a couple), giving a maximum combined threshold of up to £1 million for qualifying estates. Both nil-rate bands are frozen at current levels until April 2030.

When must IHT be paid?

IHT on most assets must be paid within six months of the end of the month of death; interest accrues after this date. The executor cannot obtain probate until HMRC has confirmed IHT has been paid (or that a payment arrangement is in place). IHT on real property (land and buildings) can be paid in instalments over 10 years; the first instalment is due six months after death. Banks in the Direct Payment Scheme can release funds from the deceased's account directly to HMRC to pay IHT before probate is granted.

Are pension funds subject to IHT?

Currently (to April 2027) most defined contribution pension pots fall outside the estate for IHT on death, because they are held in trust and do not form part of the deceased's estate. However, the government announced in the October 2024 Budget that unspent pension pots will be brought within the IHT regime from April 2027. The exact implementation rules were subject to consultation in 2025; check the current position at gov.uk before April 2027 as the rules may have been modified.

Can I give my home to my children to avoid IHT?

Not if you continue to live in it. Giving your home to your children but continuing to live there rent-free is a gift with reservation of benefit; HMRC treats it as still part of your estate for IHT on death. To take the property out of your estate, you must genuinely give up possession and pay a full market rent to the new owners. The 7-year survival period also applies. This area is heavily scrutinised by HMRC; take specialist advice before attempting to transfer a property out of an estate.

What is the gifts from income exemption?

Regular gifts made out of income (not capital) are exempt from IHT immediately, without a 7-year survival period, provided: the gifts are regular and habitual; they are made from surplus income after maintaining the donor's standard of living; and the donor has a clear pattern or intention to make regular gifts. This exemption can be valuable for funding life insurance premiums, grandchildren's school fees, or other regular payments. HMRC requires evidence of income, expenditure, and the regular pattern of gifts; keep records carefully.

How we verified this guide

All IHT thresholds, rates, and relief rules were verified against HMRC IHT guidance, Finance Act 2024, Autumn Budget 2024 IHT announcements, and Citizens Advice inheritance tax resources during May 2026. We do not accept payment from financial advisers and do not earn commission on IHT planning referrals.

Disclaimer: This guide is information only, not financial, legal or tax advice. Rates, allowances and rules change. Always check the primary sources cited and consult a regulated adviser for decisions about your own circumstances.

Primary sources

Last reviewed: May 2026.