Inheritance Tax
Inheritance Tax Explained
How much Inheritance Tax will your family pay? Understand UK rates, tax-free allowances, the seven-year gifting rule and ways to protect more of your estate.
Gifts, wills, property ownership and available reliefs can all influence the eventual Inheritance Tax bill.
Current UK rules for 2026/27. Allowances depend on individual circumstances, gifts, beneficiaries and estate composition.
Inheritance Tax at a glance
Inheritance Tax is a tax on the value of someone's estate when they die. An estate generally includes property, savings, investments, personal possessions and other assets, less allowable debts and liabilities. Certain lifetime gifts and trust assets can also affect the calculation.
£325,000
Standard tax-free allowance per person.
£175,000
Potential additional residence allowance.
40%
Usual rate on the taxable excess.
The allowances are not automatic in every case. Gifts, previous transfers, estate size and beneficiaries all matter.
What is Inheritance Tax and who pays it?
Inheritance Tax is generally paid from the deceased person's estate before beneficiaries receive their inheritance. The executor or administrator is normally responsible for valuing the estate, reporting to HMRC where required and arranging payment.
What is included?
Homes, land, cash, bank accounts, shares, investments, vehicles, valuables and some gifts made before death. Certain trusts and pension arrangements require separate consideration.
What can reduce the bill?
Available nil-rate bands, spouse or civil partner exemption, charitable gifts, qualifying business and agricultural reliefs, allowable liabilities and lifetime gifting exemptions.
Inheritance Tax allowances for 2026/27
| Allowance or rate | 2026/27 position | What it means |
|---|---|---|
| Nil-rate band | £325,000 | Standard threshold per individual |
| Residence nil-rate band | Up to £175,000 | Qualifying home inherited by direct descendants |
| Combined couple's bands | Up to £1 million | Where transferable unused allowances and conditions apply |
| Standard tax rate | 40% | Usually applies above available exemptions and reliefs |
| Reduced charitable rate | 36% | Where the qualifying 10% charitable gift condition is satisfied |
| Residence allowance taper | Starts above £2 million | Reduced £1 for every £2 above the threshold |
Important distinction: The £1 million figure is not a universal exemption for married couples. It normally requires transferable unused allowances and a qualifying residence passing to direct descendants. The residence allowance may be restricted for larger estates.
The main thresholds are scheduled to remain frozen through the 2030/31 tax year. Rising property and investment values can therefore bring more estates within the scope of Inheritance Tax even without a change to the headline rate.
Inheritance Tax calculator
Estimate the tax on an estate using its net value, available nil-rate bands and qualifying residence allowance. Results update as you change the figures.
Assumes selected standard bands are fully available, with no chargeable lifetime transfers, additional exemptions, reliefs or special allocations. Enter a net estate after allowable liabilities. The residence allowance is limited by qualifying home value and the £2 million taper.
Estimated Inheritance Tax
Illustrative only. The calculator does not establish entitlement to transferred allowances, charitable rates, or reliefs. For complex estates, obtain a detailed professional calculation.
How much Inheritance Tax might you pay?
£500,000 estate
One standard nil-rate band and no residence allowance.
Taxable: £175,000
Tax: £70,000
£750,000 estate
One £325,000 band plus a full £175,000 residence allowance.
Taxable: £250,000
Tax: £100,000
£900,000 estate
Two full standard and two residence bands are available.
Taxable: £0
Tax: £0
Examples assume no previous gifts affecting allowances, no other reliefs and full eligibility for the stated residence bands.
Inheritance Tax on your home
Property often represents the largest part of a family's estate. The residence nil-rate band can provide an additional allowance when a qualifying home is inherited by children, grandchildren or other qualifying direct descendants.
When the extra allowance applies
The deceased must have a qualifying residential interest, and the property or qualifying value must pass to direct descendants. Special downsizing provisions may preserve relief where a home was sold or downsized.
When the allowance is reduced
For estates above £2 million, the residence allowance is tapered by £1 for every £2 above that level. The test is generally based on the estate before exemptions and reliefs, making careful valuation important.
Example: A £2.2 million estate would normally lose £100,000 of its available residence nil-rate band through tapering. The final tax position depends on other allowances and circumstances.
Read our related guides to gifts and Capital Gains Tax and Lasting Power of Attorney.
The seven-year rule for Inheritance Tax gifts
Many outright gifts to individuals are potentially exempt transfers. If the donor survives seven years, the gift will normally fall outside their estate for Inheritance Tax purposes, provided no benefit has been retained and other conditions are met.
Do not confuse taper relief with a reduction in the gift's value. The reduced rates generally apply only to tax on the portion of a gift exceeding the available nil-rate band. A gift wholly within that band does not obtain an additional tax saving merely because taper relief applies.
Common gifting exemptions
| Exemption | Typical limit or condition |
|---|---|
| Annual exemption | £3,000 per tax year, with limited one-year carry-forward |
| Small gifts | Up to £250 per recipient, subject to conditions |
| Wedding or civil partnership gifts | Up to £5,000 from a parent, £2,500 from a grandparent or £1,000 from another person |
| Normal expenditure out of income | Potentially exempt without a fixed monetary ceiling when the statutory conditions are met |
| Spouse or civil partner gifts | Usually exempt, subject to special rules including cross-border circumstances |
Giving away your home but continuing to live in it rent-free can trigger the gift-with-reservation rules. This means the property may still count as part of your estate even after seven years.
Inheritance Tax changes in 2026 and 2027
Business and agricultural relief
A combined £2.5 million allowance applies to qualifying property eligible for 100% Agricultural Property Relief or Business Property Relief. Qualifying value above the allowance generally receives 50% relief instead.
Unused allowance can transfer between spouses or civil partners, subject to the rules. Separate provisions apply to certain shares and trusts.
Unused pension funds
Most unused pension funds and pension death benefits will be brought within the estate for Inheritance Tax purposes for deaths from this date.
Exceptions include qualifying death-in-service benefits and certain dependant pensions. Personal representatives will have additional reporting and payment responsibilities.
For business owners, relief is not automatic simply because shares are held in a limited company. Trading activity, ownership conditions and the nature of company assets can affect eligibility. See our limited company accountants guide for related business accounting considerations.
Seven ways to manage your Inheritance Tax exposure
Review your will
Ensure assets pass to intended beneficiaries and consider how residence allowances and exemptions may apply.
Keep gifting records
Document dates, values, recipients and the exemption claimed for gifts.
Consider gifts from income
Regular gifts funded from surplus income may qualify for exemption when the conditions are satisfied.
Check life assurance arrangements
A suitable policy written in trust may provide funds for a tax bill without necessarily increasing the taxable estate.
Review business assets
Check eligibility for Business Property Relief and the impact of the April 2026 reforms.
Understand trusts
Trusts may offer succession and control benefits, but can involve entry, periodic and exit tax charges.
Revisit pension nominations
Review beneficiary arrangements and the April 2027 pension changes as part of wider retirement and estate planning.
Estate planning should protect your financial security first. Tax efficiency is only one consideration alongside access to funds, family circumstances, care costs, legal ownership and future needs.
Reporting and paying Inheritance Tax to HMRC
Value the estate
Establish asset values, debts, gifts, beneficiaries and possible reliefs. Professional valuations may be needed for property or business interests.
Complete the relevant reporting
Depending on the estate, reporting may involve IHT400 and supporting schedules. Many excepted estates do not require a full IHT400 return.
Arrange payment
Inheritance Tax is generally due by the end of the sixth month after the month of death. Interest may arise on late payment, and instalment options may be available.
Some estates can use HMRC's Direct Payment Scheme to pay tax from the deceased's bank accounts. Executors should check the relevant probate requirements and deadlines rather than assuming payment can always wait until the estate is distributed.
Inheritance Tax FAQs
How much can you inherit without paying Inheritance Tax?
Do beneficiaries personally pay Inheritance Tax?
Is Inheritance Tax charged on everything above £325,000?
Does a spouse pay Inheritance Tax?
Can I give my house to my children to avoid Inheritance Tax?
Are gifts tax-free after seven years?
Are pensions subject to Inheritance Tax?
When must Inheritance Tax be paid?
Can giving 10% to charity reduce Inheritance Tax?
Does Inheritance Tax apply in Scotland and Northern Ireland?
Make informed decisions about your family's wealth
Understanding your tax position today can help you make better decisions about property, investments, business assets and what you eventually pass on.
Contact The Online Accountants →Related tax and financial guides
Prepared by The Online Accountants. A trading name of Parkinson (UK) Limited. ACCA membership number 1298917.
Last reviewed: 15 October 2026. This guide provides general UK tax information, not individual legal, investment or estate-planning advice. Rules may change and specialist advice may be required.