Inheritance Tax (IHT) is the UK tax paid on the estate of someone who has died. In 2026 the standard rate is 40% on everything above £325,000, with a host of allowances and reliefs that, used well, can reduce that bill to zero on estates worth up to £1 million.
This article walks through every part of the 2026 IHT regime in plain English: what's taxed, what isn't, the thresholds, and the most common reliefs to know about.
The basic threshold: the nil-rate band
The first £325,000 of an estate is taxed at 0%. This is the nil-rate band (NRB). It has been frozen at £325,000 since 2009 and the government has confirmed it will stay frozen until at least 5 April 2030.
Anything above £325,000 is taxed at:
- 40% in the standard case.
- 36% if at least 10% of the net estate is left to charity.
The bonus threshold: the residence nil-rate band
Since 2017 there has been a separate residence nil-rate band (RNRB), worth a further £175,000 in 2026, on top of the NRB. To qualify:
- The deceased must have owned a residence (or "qualifying former residence interest") that forms part of the estate.
- That residence must be passed to direct descendants - children (including step, adopted, and foster), grandchildren, etc. The home doesn't have to be specifically gifted; it can pass via the residue.
The RNRB tapers away for very large estates - it's reduced by £1 for every £2 by which the estate exceeds £2 million. So estates over £2.7 million typically lose the full RNRB.
Married couples and the transferable nil-rate band
When the first spouse dies, anything they leave to the surviving spouse is exempt from IHT under the spouse exemption. Crucially, any unused NRB and RNRB are transferred to the surviving spouse. So when the second spouse dies, their estate can have:
- £325,000 NRB (their own).
- £325,000 NRB (transferred from the first spouse, if unused).
- £175,000 RNRB (their own).
- £175,000 RNRB (transferred from the first spouse, if unused).
Total: £1,000,000 before IHT bites. This is why a married couple can leave a £1m estate to their children with no IHT.
The surviving spouse must claim the transferred allowances - the executor files a form IHT436 for the NRB transfer and IHT400 with the relevant claim for the RNRB. It's not automatic.
What's actually in the estate?
For IHT purposes the estate includes:
- Cash, savings and investments.
- Property (UK and overseas, in most cases).
- Personal possessions of value.
- Most life policies not written in trust (a policy in trust pays out outside the estate).
- Pensions, in some cases - the rules are changing in April 2027.
- Business interests (often with relief - see below).
- The deceased's share of jointly owned assets.
- Gifts made within the seven years before death (with a sliding scale - see below).
The seven-year rule on gifts
Gifts you make in the seven years before death are added back into the estate for IHT purposes. They're called Potentially Exempt Transfers (PETs). If you survive the gift by seven years, it's outside the estate entirely.
For gifts made between 3 and 7 years before death, taper relief reduces the IHT due:
| Years between gift and death | IHT rate on the gift |
|---|---|
| 0-3 | 40% |
| 3-4 | 32% |
| 4-5 | 24% |
| 5-6 | 16% |
| 6-7 | 8% |
| 7+ | 0% |
See our seven-year rule guide for a full worked example.
Other IHT-free allowances
Some gifts and exemptions sit completely outside the seven-year rule:
- Annual exemption - £3,000 per donor per tax year. Carry forward unused allowance for one year.
- Small gifts exemption - up to £250 per recipient per tax year (must be different recipients from those benefiting under the annual exemption).
- Wedding/civil partnership gifts - £5,000 from a parent, £2,500 from a grandparent, £1,000 from anyone else.
- Normal expenditure out of income - regular gifts from surplus income that don't reduce your standard of living. Powerful for high earners.
- Gifts between spouses or civil partners - unlimited, both during life and on death.
- Gifts to charity - unlimited.
- Gifts to political parties - unlimited (subject to qualifying conditions).
Business and Agricultural Property Relief
Two relief categories that often eliminate IHT on certain assets:
- Business Property Relief (BPR) - 100% on most unquoted trading businesses and AIM shares held for at least two years; 50% on certain other business assets.
- Agricultural Property Relief (APR) - 100% on agricultural land and farmhouses, with conditions.
Note: from April 2026 the government is capping the combined value of BPR and APR at 100% relief that can be claimed without restriction. Above that cap, the relief drops to 50%. Anyone with significant business or agricultural assets should review their planning.
For complex estates, we recommend you seek assistance from a Trusted Hands Advisor or your own legal advice.
When and how IHT is paid
The executor is responsible for calculating and paying IHT to HMRC. The deadline is six months after the end of the month of death. After that, HMRC charges interest on unpaid tax.
For most estates the IHT must be paid before probate is granted, which can create cash-flow problems if most of the estate is in property. Options:
- The IHT Direct Payment Scheme - banks release funds straight to HMRC.
- A bank loan to pay IHT, repaid from the estate after probate.
- Instalment payments - tax on certain assets (notably property) can be paid in 10 annual instalments.
Common IHT planning steps
The honest answer: most middle-of-the-road UK estates pay no IHT at all, because of the £1m married-couple effective threshold. But for estates above that level, common steps include:
- Lifetime gifts - using the seven-year rule and the annual exemption.
- Trusts - including discretionary, life-interest, and bare trusts.
- Life insurance written in trust - the payout sits outside the estate and provides liquidity to pay IHT.
- Charitable bequests - lowers the IHT rate on the rest from 40% to 36% if at least 10% goes to charity.
- Equalising estates between spouses - so neither dies with an "unused" RNRB.
- Reviewing pension nomination forms - the rules are changing in April 2027 to bring more pension wealth into the estate.
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Frequently asked questions
What is the inheritance tax threshold in 2026?
£325,000 per person (the nil-rate band), plus an extra £175,000 if a residence is passed to direct descendants (the residence nil-rate band). Married couples can effectively combine these to £1 million.
How is IHT calculated?
IHT is 40% on the value of the estate above the available allowances. Charitable estates get a 36% rate if 10%+ of the net estate goes to charity.
Are pensions subject to IHT?
In 2026, most pensions pay out to a nominated beneficiary outside the estate. From April 2027, defined contribution pensions are due to be brought into the estate for IHT - a significant change.
Does life insurance count as part of my estate?
Yes - unless the policy is written in trust. A policy in trust pays out to the named beneficiary directly, outside the estate. Most UK life insurance can be put in trust at no extra cost.
Can I avoid IHT by giving everything away before I die?
Only if you survive the gifts by seven years (or use specific exemptions). HMRC's "gifts with reservation of benefit" rules also catch attempts to give away your house but keep living in it - the value is added back into the estate.
Are gifts to charity tax-free?
Yes - and they reduce the IHT rate on the rest of the estate from 40% to 36% if you leave 10%+ of the net estate to charity.
A clear will is the foundation of any IHT plan. Start yours online - the Trusted Hands engine flags estates likely to attract IHT and prompts the right next steps.
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