UK Inheritance Tax Guide 2026
Inheritance Tax (IHT) is charged at 40% on estates above the nil-rate band. With careful planning, you can significantly reduce or eliminate IHT for your beneficiaries.
IHT Thresholds 2026/27
| Threshold | Amount |
|---|---|
| Nil-Rate Band (NRB) | £325,000 |
| Residence Nil-Rate Band (RNRB) | £175,000 |
| Combined (individual) | £500,000 |
| Combined (married couple) | £1,000,000 |
| IHT rate | 40% |
| Reduced rate (10%+ to charity) | 36% |
How IHT is Calculated
Estate value - Nil-rate bands - Exemptions = Taxable estate
Taxable estate × 40% = IHT due
Example: Single person, £700,000 estate, no RNRB
| Amount | |
|---|---|
| Estate | £700,000 |
| Less NRB | £325,000 |
| Taxable | £375,000 |
| IHT at 40% | £150,000 |
Residence Nil-Rate Band
The RNRB is an additional £175,000 allowance available when:
- You leave your main home
- To direct descendants (children, grandchildren)
- Estate is worth less than £2 million
Example: Married couple, £900,000 estate including home, left to children
| Amount | |
|---|---|
| Estate | £900,000 |
| Less 2× NRB | £650,000 |
| Less 2× RNRB | £350,000 |
| Taxable | £0 |
| IHT due | £0 |
IHT Exemptions
Spouse/Civil Partner Exemption
Transfers between spouses are completely exempt from IHT, regardless of value.
Annual Exemption
Give away £3,000 per year free of IHT. Unused amount carries forward one year.
Small Gifts
£250 per person per year to any number of recipients.
Wedding/Civil Partnership Gifts
- Parents: £5,000
- Grandparents: £2,500
- Others: £1,000
Gifts Out of Income
Regular gifts from surplus income are exempt if they don't affect your standard of living.
Charity
Gifts to UK charities are exempt. Leaving 10%+ to charity reduces IHT rate to 36%.
The 7-Year Rule
Gifts become exempt from IHT if you survive 7 years after making them.
Potentially Exempt Transfers (PETs)
Gifts to individuals:
- Survive 7 years: Fully exempt
- Die within 7 years: Added back to estate
Taper Relief
If you die between 3-7 years after a gift:
| Years Survived | Tax Reduction |
|---|---|
| 0-3 years | 0% |
| 3-4 years | 20% |
| 4-5 years | 40% |
| 5-6 years | 60% |
| 6-7 years | 80% |
| 7+ years | 100% (exempt) |
IHT Planning Strategies
1. Use Your Exemptions
- £3,000 annual exemption
- £250 small gifts
- Gifts from income
2. Make Lifetime Gifts
Gifts more than 7 years before death escape IHT entirely.
3. Life Insurance
Take out a life insurance policy written in trust to pay the IHT bill without using estate funds.
4. Trusts
Various trusts can help manage IHT, though most gifts into trust trigger immediate charges.
5. Business Property Relief
Shares in qualifying trading companies can receive 100% relief.
6. Agricultural Property Relief
Qualifying agricultural land can receive up to 100% relief.
7. Charitable Giving
Leave 10%+ to charity to reduce IHT rate from 40% to 36%.
Frequently Asked Questions
When is IHT due?
IHT is normally due within 6 months of the end of the month of death. Instalments over 10 years may be available for certain assets.
Can I give away my house and continue living in it?
This is a "gift with reservation" and doesn't work for IHT purposes. The house remains in your estate.
What about jointly owned assets?
For joint tenants, the deceased's share passes automatically to survivors. For tenants in common, the deceased's share forms part of their estate.
Is life insurance subject to IHT?
Yes, unless written in trust. Writing policies in trust is simple and prevents them adding to your estate.
Related Calculators
- Inheritance Tax Calculator - Calculate potential IHT
- Estate Planning Calculator - Plan your estate