Inheritance Tax Guide 2026/27 · Sep 2026

Inheritance Tax UK 2026/27: £325k → £500k → £1m?

No IHT under £325k — £500k with home to children — £1m for couples. See the thresholds, residence relief, taper and worked bills below.

02 Sep 2026 · Money Meister · 5 min read

Inheritance Tax (IHT) is often called the UK's most voluntary tax, and for good reason. With proper planning, a married couple can pass on up to £1 million completely tax-free, and there are dozens of legal reliefs and exemptions that can reduce or eliminate the 40% charge on estates. The catch? Most of these strategies require action years in advance.

Quick fact: In the 2024-25 tax year, HMRC collected roughly £7.5 billion in Inheritance Tax. But with planning, the majority of estates pay no IHT at all. Only about 1 in 25 estates currently pay the tax.

What is Inheritance Tax?

Inheritance Tax is a tax on the estate of someone who has died. Your estate includes everything you own: property, savings, investments, vehicles, possessions, and certain gifts made in the 7 years before death. The standard IHT rate is 40%, charged on the portion of your estate above the tax-free threshold.

Inheritance Tax Thresholds 2025-26

The IHT system has two main allowances that work together:

Allowance Breakdown

Allowance	Amount	Conditions
Nil-Rate Band (NRB)	£325,000	Available to everyone. Frozen since 2009 (frozen to 2027-28+).
Residence Nil-Rate Band (RNRB)	£175,000	For main home left to direct descendants. Tapers by £1 per £2 for estates over £2 million.
Combined Single Person	£500,000	NRB + RNRB if full allowances available.
Combined Married Couple	£1,000,000	Unused allowances transfer between spouses.

How much will you actually pay? (Worked examples, 2026/27)

Estate	Home to children?	Taxable	IHT due (40%)
£400,000	No (£325k allowance)	£75,000	£30,000
£400,000	Yes (£500k allowance)	£0	£0
£600,000	Yes (£500k)	£100,000	£40,000
£1,000,000	Couple + home (£1m)	£0	£0
£1,200,000	Couple + home (£1m)	£200,000	£80,000 (36% if 10%+ to charity → £72k)

Single uses £325k/£500k; couple doubles to £650k/£1m. Try your estate in the inheritance tax calculator.

The Residence Nil-Rate Band (RNRB)

The RNRB is an additional tax-free allowance when you leave your main home to children, grandchildren, or other direct descendants. Introduced in 2017 and rising to £175,000, it means most homeowners can pass on their property without IHT.

However, the RNRB begins to taper away for estates valued over £2 million, reducing by £1 for every £2 above the threshold. An estate worth £2.35 million would lose the full RNRB entirely. If you have downsized or sold your home after 8 July 2015, you may still qualify for the RNRB on qualifying assets passed to descendants.

Gifts and the 7-Year Rule

Gifts you make during your lifetime are generally not subject to IHT if you survive 7 years after making them. These are called Potentially Exempt Transfers (PETs). If you die within 7 years, the gifts are added back to your estate — but with taper relief applied after 3 years.

Taper Relief on Gifts

Years Between Gift and Death	Tax Rate on Gift
0-3 years	40% (no relief)
3-4 years	32%
4-5 years	24%
5-6 years	16%
6-7 years	8%
7+ years	0% (exempt)

IHT Exemptions and Reliefs

Beyond the nil-rate bands, there are several important exemptions:

Spouse exemption: Transfers between UK-domiciled spouses or civil partners are completely IHT-free, regardless of value.
Annual exemption: You can give away £3,000 each tax year. Unused allowance carries forward one year only.
Small gifts: Gifts of up to £250 per person per year to any number of individuals are exempt.
Normal expenditure out of income: Regular gifts from surplus income that do not reduce your standard of living are exempt with no upper limit.
Wedding gifts: Up to £5,000 to a child, £2,500 to a grandchild, or £1,000 to anyone else getting married.
Charity donations: Gifts to UK charities are exempt. Leaving 10%+ of your estate to charity drops the IHT rate to 36%.
Business Property Relief: Up to 100% relief on qualifying business assets held for 2+ years.
Agricultural Property Relief: Up to 100% relief on qualifying farmland and buildings.

How Inheritance Tax is Paid

The executor or administrator of the estate is responsible for calculating and paying IHT. The tax must be paid within 6 months of the end of the month of death. HMRC charges interest on late payments, and probate cannot be granted until the tax is paid.

For estates that include property, the executor can apply to pay IHT in instalments over 10 years — though interest applies on the outstanding balance. This is particularly useful when the estate is asset-rich but cash-poor, as it avoids forcing a quick property sale.

Inheritance Tax Planning Strategies

1. Start gifting early

Use the annual £3,000 exemption every year. For larger gifts, the 7-year clock starts on the date of gift — the earlier you give, the more likely the gift falls outside your estate.

2. Use a trust

Trusts can remove assets from your estate while retaining some control over how they are managed. Bare trusts, interest in possession trusts, and discretionary trusts each have different IHT implications. Professional advice is essential.

3. Write life insurance into trust

A life insurance policy written into an appropriate trust pays out to beneficiaries outside of your estate. This provides immediate cash to cover any IHT bill and avoids the payout itself being taxed.

4. Structure your pension properly

Pension pots can pass to beneficiaries completely outside your estate, making pensions one of the most IHT-efficient assets you can hold. Ensure your nomination form is up to date.

5. Consider a deed of variation

Within 2 years of death, beneficiaries can redirect some or all of their inheritance to others via a deed of variation. This can help reduce IHT on the original estate or redistribute assets more tax-efficiently.

How to Report and Pay IHT

The process involves:

Value the entire estate (property, savings, investments, possessions, gifts)
Apply reliefs and exemptions
Complete the IHT400 form (for estates above the threshold or with certain assets)
Submit to HMRC and pay the tax within 6 months of death
Apply for probate once HMRC confirms the IHT position

For straightforward estates below the threshold, the simpler IHT205 form may be sufficient. Most executors use a solicitor or probate specialist to manage the process.

Inheritance Tax in Scotland vs England

The IHT thresholds and rates are the same across the UK. However, Scottish estates are administered differently due to Scots law. Scotland has legal rights provisions that require a portion of the estate to go to the spouse and children regardless of the will. This affects estate planning strategies and professional advice tailored to Scotland is recommended.

Official source: GOV.UK — Inheritance Tax guidance. Rates and thresholds based on 2025-26 UK tax year. Always check HMRC for the latest figures.

Frequently Asked Questions

What is the Inheritance Tax threshold in the UK?

Inheritance Tax is charged at 40% on estates valued above £325,000 (the nil-rate band). An additional residence nil-rate band of up to £175,000 applies if you leave your main home to direct descendants, giving a combined allowance of up to £500,000 for individuals or £1 million for married couples and civil partners.

Do I have to pay Inheritance Tax on gifts?

Gifts made more than 7 years before death fall outside your estate entirely. Gifts made within 7 years may face tapered Inheritance Tax. You can give away £3,000 per year tax-free (annual exemption), plus small gifts of up to £250 per person, and regular gifts from surplus income with no limit if they are part of your normal spending pattern.

Is Inheritance Tax payable if I leave everything to my spouse?

No. Transfers between UK-domiciled spouses and civil partners are completely exempt from Inheritance Tax. This also means the surviving spouse inherits the deceased's unused nil-rate band and residence nil-rate band, potentially doubling the family's tax-free allowance to £1 million.

How can I reduce Inheritance Tax legally?

Common strategies include: making gifts more than 7 years before death, using the annual £3,000 gift exemption, regular gifts from surplus income, leaving 10% or more of your estate to charity (reduces the tax rate to 36%), using trusts, and ensuring your pension is structured to pass outside your estate. Always consult a qualified financial adviser for personalised planning.

Who pays Inheritance Tax and when?

IHT is paid by the executor or administrator of the estate before the beneficiaries receive their inheritance. It must be paid within 6 months of the end of the month in which the person died. HMRC charges interest on late payments. Probate cannot be granted until the IHT bill is settled.

Do the rules differ in Scotland?

The overall Inheritance Tax system is the same across the UK, but there are some differences in Scotland relating to how the estate is administered. The nil-rate band and residence nil-rate band thresholds are the same UK-wide. Scots law does have different rules around legal rights for spouses and children that affect estate planning.

What is Business Property Relief?

Business Property Relief (BPR) allows certain business assets to be passed on free of IHT. Qualifying businesses can claim 100% relief for a sole trader business or partnership interest, and 50% relief for shares in unlisted companies. AIM-listed shares held for at least 2 years may also qualify for BPR.

Is life insurance subject to Inheritance Tax?

Life insurance payouts made directly to your estate are included in your estate value and may be subject to IHT. However, if the policy is written into an appropriate trust, the payout goes directly to your beneficiaries outside of your estate and is usually free from Inheritance Tax.