Complete Guide to Inheritance Tax UK 2026

What is Inheritance Tax?

Inheritance Tax (IHT) is a tax on the estate of someone who has died. It applies to the total value of everything they owned—property, savings, investments, possessions, and certain lifetime gifts—minus any debts and liabilities. In the UK, IHT is charged at 40% on the portion of an estate that exceeds the tax-free threshold.

Current IHT Rates and Allowances

The UK's inheritance tax thresholds have been frozen since 2009 and will remain so until April 2030. While the thresholds stay the same, rising asset values mean more estates are being pulled into the IHT net each year.

The nil-rate band is the basic tax-free allowance everyone receives. The residence nil-rate band is an additional allowance available when you leave your home to direct descendants such as children or grandchildren.

How Inheritance Tax Applies to Different Situations

If you're married or in a civil partnership

Assets passing between spouses or civil partners are completely exempt from inheritance tax, regardless of value. This is known as the spouse exemption. Additionally, any unused nil-rate band from the first spouse to die can be transferred to the surviving spouse.

This means a married couple can potentially have a combined tax-free allowance of £1 million (£650,000 NRB plus £350,000 RNRB) when the second spouse dies, provided the RNRB conditions are met. See our married couple case study for a detailed example.

If you own property and have children

The residence nil-rate band adds up to £175,000 to your tax-free allowance when you leave your home to direct descendants. However, there's an important catch: the RNRB is tapered away for estates valued over £2 million. For every £2 your estate exceeds this threshold, you lose £1 of RNRB.

If your estate is worth £2.35 million or more, you'll lose the entire RNRB. This taper particularly affects families in areas with high property values, such as London and the South East.

If you've made gifts in the last 7 years

Gifts made during your lifetime may still count towards your estate for IHT purposes if you die within seven years of making them. These are called potentially exempt transfers (PETs). The seven-year rule means:

• Gifts made more than 7 years before death are exempt
• Gifts made within 7 years may be taxed, but taper relief reduces the rate
• Gifts made within 3 years of death are taxed at the full 40% rate

Taper relief reduces the tax rate on gifts made between 3 and 7 years before death, starting at 32% for gifts made 3-4 years before death and decreasing to 8% for gifts made 6-7 years before death.

Worked Example

Let's look at how inheritance tax is calculated in practice. Consider Margaret, a widow whose husband John died in 2018 without using any of his nil-rate band (it all passed to Margaret under the spouse exemption).

Without the transferred allowances, Margaret's estate would have faced an IHT bill of £160,000. Try Estate Map's inheritance tax calculator to see how these allowances apply to your own situation.

What's Changing in 2026 and 2027

The government announced significant changes to inheritance tax in the Autumn 2024 Budget. These reforms are being phased in over 2026 and 2027.

April 2026: Changes to Business and Agricultural Relief

April 2027: Pensions Included in Estates

Threshold Freeze Extended

The freeze on the nil-rate band (£325,000) and residence nil-rate band (£175,000) has been extended from April 2028 to April 2030. With inflation eroding the real value of these thresholds, more estates will become liable for IHT each year.

Frequently Asked Questions

Do I need to pay inheritance tax on money I inherit?

No. Inheritance tax is paid by the estate before assets are distributed to beneficiaries. As a beneficiary, you receive your inheritance after any tax has been paid. However, if you receive a gift from someone who dies within 7 years, you may be liable for any IHT due on that gift.

Is there inheritance tax between husband and wife?

No. Assets passing between spouses or civil partners are completely exempt from inheritance tax, regardless of the amount. This exemption applies whether the transfer happens during lifetime or on death.

What is the inheritance tax threshold for 2026?

The basic nil-rate band remains at £325,000 for 2026. With the residence nil-rate band of £175,000, individuals leaving their home to direct descendants have a threshold of £500,000. Married couples can potentially have a combined threshold of £1 million.

Can I give my house to my children to avoid inheritance tax?

You can gift your home to your children, but you must live for 7 years after the gift for it to be fully exempt. If you continue to live in the property after gifting it, the gift may be treated as a "gift with reservation of benefit" and remain in your estate for IHT purposes unless you pay market rent to your children.

How do I reduce my inheritance tax bill?

Common strategies include: making gifts during your lifetime (using the 7-year rule), leaving at least 10% to charity (reduces the rate to 36%), ensuring you claim the residence nil-rate band, using business or agricultural property relief where applicable, and taking out life insurance written in trust to cover any expected IHT liability.

Do I need to report an estate to HMRC if there's no tax to pay?

It depends on the estate value and circumstances. Estates below £325,000 with no complex features may qualify as "excepted estates" and don't need a full IHT return. Larger estates or those with trusts, gifts, or foreign assets generally require reporting even if no tax is due. A solicitor or probate specialist can advise on your specific situation.

Next Steps

Understanding where you stand is the first step in effective estate planning. Try our free calculator to estimate your potential inheritance tax liability and see how different allowances apply to your situation.

For complex estates, especially those involving business assets, agricultural property, or significant pension savings, professional advice is essential. Consider consulting a solicitor specialising in estate planning or a qualified financial adviser.