What is Inheritance Tax? UK Definition 2026/27
Quick Answer
Tax at 40% on estates worth over £325,000 when someone dies.
Definition of Inheritance Tax
Inheritance Tax (IHT) is charged at 40% on the value of an estate above the nil-rate band (£325,000) when someone dies. The residence nil-rate band adds £175,000 if passing a home to direct descendants. Gifts to spouses, charities, and some business assets are exempt. The 7-year rule applies to lifetime gifts.
Inheritance Tax — Key Facts for 2026/27
| Nil-rate band | £325,000 |
| Residence nil-rate | £175,000 |
| IHT rate | 40% |
| Charity rate | 36% (if 10%+ to charity) |
How Inheritance Tax Works — Example
- 1Estate value: £800,000 (including home)
- 2Nil-rate band: £325,000
- 3Residence nil-rate: £175,000
- 4Total allowance: £500,000
- 5Taxable: £300,000
- 6IHT at 40%: £120,000
How Inheritance Tax Affects Your Tax
IHT affects more estates due to frozen thresholds and rising property values. Planning is essential - using allowances, making gifts, considering trusts, and life insurance can significantly reduce IHT liability.
Official HMRC Guidance on Inheritance Tax
For official guidance, refer to HMRC's documentation. Tax rules can change, so always verify current rates and thresholds on gov.uk.
HMRC: Inheritance TaxFrequently Asked Questions about Inheritance Tax
Accuracy Note
This information is for guidance only and is based on 2026/27 tax year rates. Tax rules are complex and your circumstances may differ. For personal advice, consult a qualified accountant or tax adviser.