Topic · Personal Finance
UK Inheritance Tax
The threshold is £325,000 — frozen until 2030. The rate is 40% above that. Big changes are coming in April 2027. Here’s what it means for your estate, in plain English.
By Matthew Burrows · Reviewed 21 April 2026
Current to Autumn Budget 2024 changes. Covers April 2027 pensions reform.
On this page
The Essentials
Inheritance Tax at a Glance
- Threshold (Nil Rate Band)
- £325,000
- Rate above the threshold
- 40%
- Residence Nil Rate Band (main home to direct descendants)
- £175,000
- Individual allowance (with main home)
- £500,000
- Couple’s maximum combined (transferable)
- £1,000,000
- Thresholds frozen until
- April 2030
- Pensions enter IHT scope
- 6 April 2027
What Is Inheritance Tax?
Inheritance Tax (IHT) is a tax on the estate — the property, money, and possessions — of someone who has died. In the UK, it applies only to estates above a set threshold, and only the portion above that threshold is taxed.
The headline rate is 40%, but it doesn’t apply to everything. Most people pay nothing, because the threshold (currently £325,000, or £500,000 for those leaving a main home to their children or grandchildren) covers their entire estate. Around 1 in 20 estates pay IHT today — but that share is rising as thresholds stay frozen while asset values climb.
IHT isn’t about punishing you for dying — it’s how the government takes a share of wealth passed between generations. Whether your estate owes anything (and how much) depends on three things: its total value, who you’re leaving it to, and what planning you’ve put in place. The rest of this page walks through each.
Who Pays, and When
The executor pays IHT out of the estate, not the beneficiaries directly. That’s the personal representative named in the will (or appointed by the court if there’s no will). Their job is to value the estate, calculate what’s owed, pay HMRC, then distribute what remains.
The key deadlines & options
- IHT payment: within 6 months after the end of the month of death.
- Filing the return: within 12 months of death (form IHT400 for most estates; IHT205 for smaller “excepted” estates).
- Late payment: HMRC charges interest on any IHT paid after the 6-month deadline (rate reviewed periodically).
- Instalments option: IHT on certain assets — land, buildings, qualifying shares, and business interests — can be paid over 10 years rather than in a single lump. Useful for asset-rich, cash-poor estates.
The awkward bit: you usually pay IHT before probate
Probate is the legal authority to administer an estate. You generally can’t access the deceased’s bank accounts or sell their property until probate is granted — but HMRC wants its IHT payment before issuing probate. This creates a cash-flow problem for executors.
Common solutions: banks will often release money directly to HMRC from the deceased’s accounts (the Direct Payment Scheme), executors can take a short-term loan, or beneficiaries contribute their expected inheritance upfront.
The Two Allowances: NRB + RNRB
UK estates have two tax-free allowances. The first applies to everyone. The second only kicks in if you meet specific conditions — but it can nearly double your total allowance.
| Allowance | Amount | Who gets it |
|---|---|---|
| Nil Rate Band (NRB) | £325,000 | Every UK estate — no conditions. |
| Residence Nil Rate Band (RNRB) | Up to £175,000 | Only if the main home is left to direct descendants (children, grandchildren, adopted, step, or fostered), AND the estate is under £2m. |
Worked example
A single person with a £600,000 estate that includes a main home left to their child gets both allowances: £325,000 NRB + £175,000 RNRB = £500,000 tax-free. IHT is due on £100,000 at 40% = £40,000.
Couples can transfer unused allowances
When a spouse or civil partner dies, any unused portion of their NRB and RNRB passes to the surviving partner. Combined, a married or civil-partnered couple leaving a main home to their children can shelter up to £1,000,000 from IHT.
The £2m taper on RNRB
The RNRB starts reducing for estates valued over £2 million. You lose £1 of RNRB for every £2 your estate exceeds £2m. An estate of £2.35m or more loses the full £175,000 RNRB entirely.
This taper is a common surprise for higher-net-worth families — the £1m couple’s combined allowance isn’t automatic if your estate is sizeable.
The 7-Year Rule & Gifting
Most people think gifts become IHT-free after seven years. That’s broadly right — but the detail matters, especially when the gift is large, or when timing works against you.
How the 7-year rule works
When you give something away, HMRC calls it a Potentially Exempt Transfer (PET). Survive seven years after the gift and it’s fully exempt from IHT. Die sooner and the gift counts back into your estate — though the tax on it may be reduced through taper relief.
| Years before death | Tax rate on the gift |
|---|---|
| 0–3 years | 40% |
| 3–4 years | 32% |
| 4–5 years | 24% |
| 5–6 years | 16% |
| 6–7 years | 8% |
| 7+ years | 0% — exempt |
Gifts that are always exempt
- Annual exemption: £3,000 per year. Unused amount carries forward one year — so you can gift up to £6,000 in a single year if you missed the prior one.
- Small gifts: £250 per person, to as many people as you like (can’t combine with another exemption for the same person).
- Wedding gifts: £5,000 to a child, £2,500 to a grandchild, £1,000 to anyone else.
- Gifts from surplus income: unlimited — if regular, from your income (not capital), and doesn’t reduce your standard of living. HMRC scrutinises this one closely; keep records.
- Spouse or civil partner: unlimited (UK-domiciled — see next section).
- UK-registered charities: unlimited.
The common misconception
Taper relief reduces the tax on the gift — not the gift’s consumption of your Nil Rate Band. Gifts that fail the 7-year test eat into your £325,000 NRB first. Only gifts that exceed the NRB face taper on the excess.
For most ordinary estates, taper relief doesn’t save anything — the NRB absorbs the gift entirely. Taper matters for larger estates where cumulative lifetime gifting pushes above £325,000.
Spouse & Civil Partner Rules
If you leave assets to a UK spouse or civil partner, there’s no IHT to pay — no matter the value. Marriage or civil partnership is one of the largest IHT-planning levers most people never actively use.
The unlimited spouse exemption
Gifts between UK-domiciled spouses or civil partners are 100% exempt from IHT, both during lifetime and on death. No cap, no NRB deduction — nothing.
Transferable allowances
On top of the spouse exemption, any unused percentage of the first spouse’s NRB and RNRB passes to the survivor. That’s how couples reach £1,000,000 combined — each partner’s £325k NRB + £175k RNRB, fully transferred if unused.
The key word is percentage. If the first spouse died when the NRB was £300k and used half, 50% of their allowance transfers — which means 50% of today’s £325k, not £150k frozen in time. The allowance gets uprated to current thresholds.
Worked example
Dave and Lisa are married. Dave dies first with a £200,000 estate, left entirely to Lisa. No IHT — spouse exemption. His £325k NRB and £175k RNRB are 100% unused and transfer to Lisa.
Years later, Lisa dies leaving £900,000 (including the main home) to their children. Her estate gets:
- · Her own NRB: £325,000
- · Dave’s transferred NRB: £325,000
- · Her own RNRB: £175,000
- · Dave’s transferred RNRB: £175,000
Total tax-free: £1,000,000. IHT on the £900k estate? Zero.
The cohabitation trap
Unmarried couples get none of this. Not the unlimited exemption. Not the transferable NRB. Not the transferable RNRB.
It doesn’t matter if they’ve been together 40 years or share children. For IHT, they’re legal strangers. This trap catches thousands of long-term unmarried partners every year.
Non-UK-domiciled spouses
If the surviving spouse isn’t UK-domiciled, the exemption is capped at £325,000 — unless they elect to be treated as UK-domiciled for IHT (a decision with consequences beyond IHT, so take advice).
Reliefs: Business, Agricultural, Charity
Some assets and gifts are treated differently by HMRC. Business and agricultural property can get partial or full relief. Gifts to charity are unlimited. And leaving 10%+ of your estate to charity triggers a reduced IHT rate on what remains.
Business Property Relief (BPR)
Own a qualifying business asset for at least 2 years before death and BPR can shelter it from IHT:
- 100% relief: trading business you own, unquoted shares in a trading company, partnership interests.
- 50% relief: controlling shareholdings in quoted companies, land or machinery used in a business.
Pure investment holdings don’t qualify. The business must actively trade — property letting and investment don’t count.
Agricultural Property Relief (APR)
Agricultural land and associated buildings can qualify for similar relief:
- 100% relief: owner-occupied farms (2-year hold); long-lease tenanted farms (7-year hold).
- 50% relief: most shorter-lease arrangements.
APR applies to the agricultural value only — any development value sits outside.
The April 2026 cap change
From 6 April 2026, a £1,000,000 combined cap applies to 100% BPR and APR relief per individual. Qualifying assets above that cap drop to 50% relief. Announced in Autumn Budget 2024 — a material change for family-business and farm succession planning.
Charitable giving
Gifts to UK-registered charities — lifetime or on death — are 100% exempt from IHT. No cap, no taper, no conditions beyond the charity being qualifying.
The 36% reduced rate
Leave 10%+ of your net estate to charity and the IHT rate on the rest drops from 40% to 36%.
The “net estate” for this test is what’s left after all other exemptions and reliefs (NRB, RNRB, spouse exemption). The calculation isn’t simple — but the saving is real. A £2M estate leaving £200k to charity could save the remaining estate tens of thousands compared to no charitable gift.
Pensions & IHT — What’s Changing in April 2027
Today, most UK pension funds sit outside an estate for IHT purposes. If you die with money still in your SIPP or workplace pension, it passes to your chosen beneficiaries IHT-free. That ends on 6 April 2027.
Before · until 5 April 2027
- Unused pension funds: outside IHT
- Death benefits (DC schemes): outside IHT
- Spouse inherits: no IHT (income tax only if drawn)
From · 6 April 2027
- Most unused pension funds: inside IHT
- Most death benefits: inside IHT
- Spouse inherits: still exempt
- Non-spouse beneficiaries: IHT on pension + income tax
Why this matters
Pensions had become a major IHT-planning tool: wealthy households drew down other assets first (ISAs, investments, cash) and left pension pots untouched, knowing the pension would pass IHT-free. From April 2027, that flips.
Estate planning that relied on pension-last drawdown needs rebuilding. For some families, tens of thousands in expected IHT now becomes real.
What still works
The spouse exemption continues to apply. Leaving a pension to your UK spouse or civil partner keeps it IHT-free. The change bites when the beneficiary is a child, sibling, or anyone other than a spouse.
What to consider now
If you have significant pension wealth, the planning conversations worth having before April 2027:
- Does it still make sense to hold the pension untouched, or should drawdown start earlier?
- Gifting strategies using the 7-year rule (clock’s ticking — start early).
- Life insurance written into trust to cover the expected IHT bill.
- Revisit beneficiary nominations on your pension schemes.
The full IHT Guide covers the detail. The Calculator can help model the impact before the change takes effect.
Common Questions
Quick answers to the questions we see most often. Click any question to expand.
How much can I inherit before paying UK inheritance tax?
Most people inherit without paying any tax. Inheritance Tax in the UK starts at 40% on estates above the Nil Rate Band of £325,000. If the deceased leaves their main home to direct descendants, the Residence Nil Rate Band adds up to £175,000 — raising the individual threshold to £500,000.
Married couples and civil partners can combine unused allowances for up to £1,000,000 tax-free.
Do I pay inheritance tax on money gifted to me while someone is alive?
No — recipients of lifetime gifts don’t pay IHT. But if the giver dies within seven years of the gift, it may count back into their estate for IHT calculation. The rate tapers down between years 3 and 7; after seven years, the gift is fully exempt.
Any tax due is paid from the estate, not by the recipient.
How long after someone dies do you have to pay inheritance tax?
Inheritance Tax must be paid within six months after the end of the month of death. Filing the full return (form IHT400 for most estates) is due within 12 months. HMRC charges interest on late payments.
IHT on certain assets — land, buildings, qualifying shares, and business interests — can be paid in instalments over 10 years.
What happens if the estate can’t afford to pay inheritance tax?
HMRC expects IHT to be paid before probate is granted, which creates a cash-flow problem for many estates. Common solutions:
- Direct Payment Scheme: banks release funds directly from the deceased’s accounts to HMRC
- Short-term executor loans against the expected estate
- Beneficiary contributions from their expected inheritance upfront
- 10-year instalments on qualifying illiquid assets
What is the 7-year rule for inheritance tax?
The 7-year rule governs lifetime gifts. Survive seven years after making a gift and it’s fully exempt from IHT. Die within that period and the gift counts back into your estate — though the tax on any gift value above your £325,000 Nil Rate Band is reduced through taper relief, from 40% at 0–3 years down to 8% at 6–7 years.
Do unmarried couples get the same inheritance tax treatment as married couples?
No — this is one of the most expensive traps in UK IHT. Unmarried cohabiting partners don’t qualify for the unlimited spouse exemption, nor do they inherit unused NRB or RNRB from each other.
It doesn’t matter how long they’ve been together or whether they share children. For IHT purposes, unmarried partners are legal strangers.
Will my pension be subject to inheritance tax?
Currently, most UK pension funds sit outside your estate for IHT purposes. But from 6 April 2027, that changes — most unused pension funds and death benefits will come into IHT scope.
The spouse exemption still applies, so pensions left to UK spouses or civil partners remain IHT-free. Non-spouse beneficiaries may pay IHT on the pension plus income tax when drawing it down.
Can I reduce my inheritance tax bill by giving to charity?
Yes, in two ways:
- Any gift to a UK-registered charity is 100% exempt from IHT — no cap.
- Leaving 10% or more of your net estate (after other reliefs) to charity drops the IHT rate on the rest from 40% to 36% — the reduced charitable rate.
Does life insurance count towards my estate for inheritance tax?
It depends on how the policy is held. If your life insurance pays out directly into your estate, it counts towards IHT — potentially adding significantly to your bill.
If the policy is written into trust, the payout goes directly to beneficiaries outside the estate, so it’s IHT-free. Writing policies into trust is one of the simplest, most effective IHT-planning moves most people overlook.
Is inheritance taxable income for the person receiving it?
No — beneficiaries in the UK don’t pay income tax on what they inherit. Any tax due (Inheritance Tax) is paid from the estate by the executor before distribution.
However, any income the inherited assets subsequently generate — rental income, dividends, savings interest — is subject to normal income tax.
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