IHT Rate UK (2026): What Percentage Is Inheritance Tax?

The standard inheritance tax rate in the United Kingdom (for England, Wales, Scotland, and Northern Ireland) is 40% on the value of the deceased's estate that exceeds the available nil-rate band. In 2026/27: (1) Nil-rate band: the first £325,000 of the estate is charged at 0% (it is within the nil-rate band). This threshold has been frozen at £325,000 since 2009/10 and is frozen until at least 2030 under current government policy. The nil-rate band can be increased by: (a) any unused nil-rate band transferred from a late spouse or civil partner (transferable NRB — can double the NRB to £650,000 on the second death); (b) no other reliefs directly increase the NRB, but various exemptions and reliefs reduce the taxable estate; (2) Residence nil-rate band (RNRB): an additional £175,000 applies (in 2026/27) where the main residence is left to direct descendants. Transferable RNRB means £350,000 RNRB may be available on second death. Combined with the NRB, a married couple can pass up to £1,000,000 free of IHT; (3) 40% rate: anything above the available NRB and RNRB is charged at 40%. Example: estate of £600,000 with NRB of £325,000 and no RNRB → IHT = 40% × £275,000 = £110,000; (4) The 40% rate has been the standard IHT rate in the UK since 2008. Before 2008 it was also 40% (40% since 1988). Before 1988 it was higher (Capital Transfer Tax and Estate Duty had higher rates in some periods); (5) Scotland and Northern Ireland: the same IHT rate applies across the United Kingdom. IHT is a reserved matter — it is set by Westminster and applies equally in all four nations, even though devolved governments handle income tax rates separately. The nil-rate band and RNRB are also the same throughout the UK.

A reduced inheritance tax rate of 36% applies where the deceased left at least 10% of their net estate to qualifying charities: (1) The 10% charitable legacy test: the 36% rate is triggered when the charitable legacy equals or exceeds 10% of the 'baseline' of the estate. The baseline is the estate (net of debts, exemptions, and reliefs) minus the available nil-rate band. This is the portion of the estate that would otherwise be subject to the 40% rate; (2) Example of the 36% rate: estate = £700,000. Debts = £50,000. Available NRB = £325,000. Baseline = (£700,000 − £50,000) − £325,000 = £325,000. For the 36% rate, the charitable legacy must be at least 10% × £325,000 = £32,500. If £32,500+ is left to qualifying charities, the IHT rate on the non-charitable portion falls to 36% instead of 40%; (3) Is the 36% rate always beneficial? Not always — it depends on the size of the charitable legacy needed and the estate's composition. However, in many cases the IHT saving from the reduced rate can be significant: the government calculated the 36% rate to be roughly 'revenue neutral' for the Treasury where the charitable legacy is at exactly 10% — but the charitable beneficiaries receive the legacy at no cost to the rest of the estate (the IHT saving offsets the cost of the charity gift); (4) Merging components: the 36% rate applies component-by-component if the estate is divided. Where the estate has multiple 'components' (jointly held property passing by survivorship; trust property; the estate itself), each component can be opted in or out of the 36% rate calculation. Consolidating components can sometimes increase the threshold and make the test easier to meet; (5) Making the 36% rate work in practice: if a testator leaves 9% to charity (just under the threshold), a deed of variation within 2 years of death can increase the charity's share to 10%+ to trigger the reduced rate. The IHT saving may exceed the extra charitable gift; (6) Qualifying charities: the charity must be a UK charity (registered with the Charity Commission or exempted), an EU/EEA charity (pre-Brexit acquired rights may apply), or certain other qualifying bodies. Gifts to non-UK charities since 2022 may not qualify for IHT exemption under post-Brexit rules.

The 40% death rate applies to chargeable events on death. For lifetime transfers, different rates apply: (1) Potentially Exempt Transfers (PETs): most lifetime gifts between individuals are PETs. While the donor is alive, no IHT is charged on a PET. If the donor survives 7 years from the date of the PET, it falls out of the estate entirely and no IHT is ever due. If the donor dies within 7 years, the PET becomes a chargeable transfer on death: it is included in the cumulative total against the nil-rate band, potentially causing IHT on the estate; taper relief applies to reduce the IHT on the PET if death occurs between 3 and 7 years after the gift (see below); (2) Chargeable Lifetime Transfers (CLTs): gifts into discretionary trusts (and certain other trusts) are CLTs and are immediately chargeable at 20% to the extent they exceed the donor's available nil-rate band at the date of the gift. If the donor dies within 7 years of the CLT, the additional IHT at death (using the 40% death rate minus the 20% already paid) is charged; (3) Taper relief: where a donor dies within 7 years of making a PET or CLT and IHT becomes due, taper relief reduces the IHT payable: 0–3 years before death: 0% reduction (full rate); 3–4 years: 20% reduction (effective rate 32%); 4–5 years: 40% reduction (effective rate 24%); 5–6 years: 60% reduction (effective rate 16%); 6–7 years: 80% reduction (effective rate 8%). Taper relief applies to the tax on the gift, not the nil-rate band; (4) Annual exemption: the first £3,000 of gifts per tax year is exempt from IHT entirely (small gifts exemption and annual exemption). This can be used cumulatively; (5) 10-year charge on discretionary trusts: discretionary trusts are subject to a periodic charge every 10 years at a maximum of 6% of the value above the NRB at that date. An exit charge (proportionate to the 10-year charge) applies when capital leaves the trust.

The IHT calculation for an estate on death follows these steps: (1) Identify the chargeable estate: add up all assets in the estate (property at probate value, bank accounts, investments, pension funds [note: pension funds entering estates from April 2027], business interests after BPR, agricultural assets after APR, personal belongings, etc.) minus: debts (mortgage; credit cards; overdrafts; funeral expenses; HMRC liabilities); spouse/charity exemptions; approved reliefs; (2) Add cumulative chargeable transfers within the last 7 years: any CLTs or failed PETs (PETs where the donor died within 7 years) made in the 7 years before death are added to the estate for NRB purposes. This reduces the NRB available for the estate; (3) Apply the nil-rate band: the first £325,000 of the chargeable estate (reduced by any cumulative transfers) is taxed at 0%; (4) Apply the RNRB (if applicable): the RNRB (up to £175,000 in 2026/27) is applied against the estate value if the residence passes to direct descendants — reducing the chargeable estate further; (5) Apply the 40% rate (or 36% if charitable legacy ≥ 10%): the balance above the NRB and RNRB is charged at 40% (or 36%); (6) Deduct any business or agricultural property relief already applied to reduce the taxable value of specific assets; (7) Example: estate (property £400k + savings £200k + investments £100k) = £700k. Mortgage £80k. Spouse exemption on £300k (to surviving spouse) = £300k exempt. Chargeable estate £320k (below NRB £325k) → IHT = £0. This illustrates how spouse exemption dramatically reduces IHT on first death. (8) File IHT400 (or use online excepted estate service for simpler estates below the reporting threshold); pay IHT within 6 months of end of month of death.

Several legitimate strategies can reduce the effective rate of IHT or the amount of the estate subject to IHT: (1) Use the nil-rate band and RNRB efficiently: maximise use of both spouses' NRBs and RNRBs through careful will planning. Ensure the family home passes to direct descendants to use the RNRB; (2) Lifetime gifting (PETs): gifts between individuals survive 7 years without IHT cost. Regular annual gifting (£3,000/year exempt; additional small gifts £250/person/year exempt) reduces the estate. Larger one-off gifts use the PET mechanism; (3) Normal expenditure out of income: gifts from surplus income (not capital) can be made free of IHT with no 7-year clock, provided they are regular, from income, and do not reduce the donor's standard of living. IHTA 1984 s.21; (4) Business Property Relief (BPR) and Agricultural Property Relief (APR): qualifying business interests (100% BPR for unlisted trading companies; 50% for listed shares/land used by another company) and agricultural property (100% APR for vacant possession agricultural land; 50% for let agricultural land) are significantly reduced or eliminated for IHT. Note: APR/BPR reforms from April 2026 cap combined APR and BPR at 100% relief on the first £1m, then 50% above £1m; (5) Leave 10%+ to charity for the 36% rate: as discussed above; (6) Life insurance in trust: a life insurance policy written in trust pays out on death outside the estate — providing funds to pay IHT or to compensate beneficiaries for any IHT bill, without the payout itself increasing the estate; (7) Deed of variation: up to 2 years after death, beneficiaries can redirect inheritance to reduce IHT via a deed of variation (IHTA 1984 s.142) — for example, redirecting to a surviving spouse to use the RNRB on the second death, or to charity.