Inheritance Tax UK: The Complete Guide (2026/27)
Around 1 in 20 UK estates pays inheritance tax today — but frozen thresholds, the April 2026 cap on business and farm reliefs, and the April 2027 inclusion of pensions are steadily pulling more families in. This is the definitive plain-English guide for England & Wales: how the tax works, every allowance you can use, and what is changing.
IHT at a glance (2026/27)
- Nil-rate band (per person):£325,000 — frozen until April 2030
- Residence nil-rate band:up to £175,000 (home to direct descendants; tapered above £2m estates)
- Rate above allowances:40% (36% with a 10% charitable legacy)
- Spouse/civil partner:Exempt, and unused allowances transfer
- Couples can pass:up to £1 million combined
- From 6 April 2026:100% BPR/APR capped at £1m combined, 50% above
- From 6 April 2027:unused pensions counted in the estate
How inheritance tax works
When you die, your executor values everything you own — property at market value, savings, investments, vehicles and possessions — and deducts your debts and funeral costs. That net figure is your estate. Anything passing to a UK-domiciled spouse or civil partner is exempt. What remains is set against your allowances, and the excess is taxed at 40%.
The tax is paid by the estate, not by the people inheriting: the executor settles the bill with HMRC (normally via form IHT400) before distributing what is left. Beneficiaries do not pay income tax on inheritances, although from April 2027 pension death benefits can carry their own income tax when the person who died was 75 or over.
The allowances: nil-rate band and residence nil-rate band
Everyone has a £325,000 nil-rate band, unchanged since 2009 and frozen until April 2030. The freeze is why IHT quietly catches more estates every year: house prices rise, the threshold does not.
If your home (or a share of it) passes to direct descendants — children, stepchildren, adopted or foster children, or grandchildren — you may also use the residence nil-rate band of up to £175,000, capped at the value of the home. Two catches: estates over £2 million lose £1 of residence band for every £2 over the line, and the home must actually pass to descendants under your will. A downsizing addition preserves the allowance if you sold or downsized your home after 8 July 2015 and left equivalent assets to descendants.
Married couples and civil partners inherit each other's unused allowances.On the second death the survivor's estate can claim up to double both bands: £650,000 of nil-rate band plus £350,000 of residence band — the famous £1 million for couples. Unmarried partners get neither the exemption nor the transfer, one of the strongest practical arguments for marriage, civil partnership, or at minimum a carefully drafted will.
Exemptions: spouses and charities
Everything left to a UK-domiciled spouse or civil partner is fully exempt, whatever the amount. Gifts to registered charities are also exempt — and if you leave at least 10% of your net estate to charity, the IHT rate on the rest drops from 40% to 36%. On larger estates the reduced rate means a substantial charitable legacy can cost your other beneficiaries surprisingly little. More on the charity exemption →
Lifetime gifts and the 7-year rule
Gifts to individuals are Potentially Exempt Transfers: survive 7 years and they leave your estate entirely. Die sooner and they are added back. Tax on gifts made 3–7 years before death is reduced by taper relief — note it tapers the tax, not the value, so it only helps where the gift itself exceeds the nil-rate band.
| Years between gift and death | Rate on the gift |
|---|---|
| Under 3 | 40% |
| 3–4 | 32% |
| 4–5 | 24% |
| 5–6 | 16% |
| 6–7 | 8% |
| 7+ | 0% |
Some gifts never count at all: the £3,000 annual exemption(plus one year's carry-forward), £250 small gifts to any number of people, wedding gifts (£5,000 to a child, £2,500 to a grandchild, £1,000 to others), and — often the most powerful — regular gifts out of surplus income, which are immediately exempt with no 7-year clock if they come from income and leave your standard of living intact. Beware gifts with reservation of benefit: give away your house but keep living in it rent-free and HMRC treats it as still yours. 7-year rule in depth →
What's changing: April 2026 and April 2027
From 6 April 2026 (already in force): 100% Business Property Relief and Agricultural Property Relief are limited to the first £1 million of combined qualifying assets per person; value above that gets 50% relief. AIM and similar unquoted-market shares now get 50% relief with no £1 million allowance. Business owners and farming families whose plans assumed unlimited 100% relief should revisit them. IHT for business owners →
From 6 April 2027: most unused pension funds and death benefits come intothe estate for IHT. This is the biggest change in a generation — pensions have been the standard "leave it till last" inheritance vehicle precisely because they sat outside the estate. Families with modest homes plus healthy pension pots will cross the threshold for the first time, and bigger estates can also lose residence nil-rate band through the £2 million taper once pensions count. The 2027 pension change → · See your before/after →
Property, savings and insurance
Your home is usually the estate's biggest asset — valued at open-market value, with joint ownership passing automatically to a surviving joint tenant (still counted for tax) or under your will for tenants in common. Savings and investments are counted at date-of-death value; ISAs lose their tax wrapper on death but a surviving spouse inherits an additional ISA allowance. Life insurance paid to your estate swells the taxable value — written into trust, it bypasses the estate entirely and pays out fast. Deep dives: property, joint ownership, savings, ISAs, life insurance in trust.
How executors pay the bill
IHT is due by the end of the sixth month after the month of death; HMRC charges interest after that. Most taxable estates report through form IHT400; simpler excepted estates report values during the probate application instead. Practicalities that help: tax on land and buildings can be spread over 10 annual instalments(interest applies), banks can pay HMRC directly from the deceased's accounts under the Direct Payment Scheme before probate is granted, and quick succession relief softens the blow when the same assets are taxed twice within five years. QSR explained →
Reducing IHT legally
The dependable levers, roughly in order of simplicity: spend and enjoy your money; use the annual and small-gift exemptions every year; make larger gifts early enough to outlive the 7-year clock; set up regular gifts from surplus income; write life insurance into trust; leave 10% to charity for the 36% rate; and make sure your will actually routes the home to direct descendants and uses the spouse exemption. Trusts, deeds of variation and business structures have their place but need professional advice. Legal ways to reduce IHT →
Your will is the tool that makes all of this work
Spouse exemption, the residence nil-rate band and the 36% charity rate all depend on what your will says. WillSafe UK kits are plain-English, Wills Act 1837 compliant, and delivered instantly.
Go deeper
- The 7-year rule in depth
- Taper relief explained
- Gifts and IHT
- Gifts out of surplus income
- Legal ways to reduce IHT
- The charity exemption and 36% rate
- Pensions and IHT from April 2027
- IHT on property
- Jointly owned property
- IHT on savings
- ISAs and IHT
- Life insurance in trust
- Equity release and IHT
- IHT for business owners
- Quick succession relief
Frequently asked questions
What is the inheritance tax threshold in 2026/27?
The nil-rate band is £325,000 per person, frozen until April 2030. Leaving your home to children or grandchildren can add up to £175,000 of residence nil-rate band, so a single person can pass up to £500,000 tax-free. Because unused allowances transfer between spouses and civil partners, a couple can pass up to £1 million.
What rate is inheritance tax charged at?
40% on the value above your available allowances. The rate drops to 36% on the taxable part if you leave at least 10% of your net estate to charity. Everything left to a UK-domiciled spouse or civil partner is exempt entirely.
How does the 7-year rule work?
Gifts to individuals are Potentially Exempt Transfers. Survive 7 years and they fall out of your estate completely. Die within 7 years and they are added back; gifts made 3 to 7 years before death benefit from taper relief, which reduces the tax charged on the gift (not its value).
What changes for inheritance tax in April 2027?
From 6 April 2027, most unused pension funds and pension death benefits are due to come into the estate for IHT, following the Autumn 2024 Budget. Many estates that pay nothing today will cross the threshold once pensions are counted. Use our free calculator to see the before-and-after for your own figures.
What changed for business and farm reliefs in April 2026?
From 6 April 2026, 100% Business Property Relief and Agricultural Property Relief only apply to the first £1 million of combined qualifying assets; value above that gets 50% relief. Shares on markets like AIM get 50% relief with no £1 million allowance.
Who actually pays the inheritance tax bill?
The executor pays it from the estate before distributing to beneficiaries, normally using form IHT400. Payment is due by the end of the sixth month after the month of death, after which interest runs. Tax on land and buildings can be paid in 10 annual instalments, and banks can pay HMRC directly under the Direct Payment Scheme before probate.
Does a will reduce inheritance tax?
A will does not change the tax rates, but it is how you use the exemptions: leaving assets to a spouse (exempt), directing your home to direct descendants (unlocks the residence nil-rate band), and leaving 10% to charity (cuts the rate to 36%) all happen through your will. Dying intestate can waste these allowances.
Do I need professional advice for IHT planning?
If your estate is comfortably below your allowances, usually not. If you are over the threshold, own a business or farm, have assets abroad, or want to use trusts, speak to a solicitor or chartered tax adviser. WillSafe UK publishes self-help templates and information, not tax or legal advice.
Information, not tax or legal advice. Based on the Inheritance Tax Act 1984 and current HMRC guidance for England & Wales, including the Autumn 2024 Budget changes to reliefs (April 2026) and pensions (April 2027) — final pension legislation may differ. For estates over the allowances or involving businesses, farms, trusts or foreign assets, take regulated advice. WillSafe UK is a template publisher, not a firm of solicitors.