Inheritance Tax Threshold UK 2026: What You'll Actually Pay

The inheritance tax nil-rate band stays at £325,000 until April 2030 under the current freeze. Estates above this pay 40% on the excess. Married couples and civil partners can combine allowances, potentially reaching £1 million when the residence nil-rate band applies.

The Main Nil-Rate Band: Still £325,000 in 2026

The nil-rate band is the amount you can leave without triggering inheritance tax. It has been £325,000 since April 2009. In March 2021, the government extended the freeze until April 2028, then again to April 2030 in the Autumn Budget 2024.

This means if your estate is worth £325,000 or less when you die, your beneficiaries pay nothing. Above that, HMRC charges 40% on the excess. An estate worth £425,000 pays £40,000 in tax: (£425,000 − £325,000) × 40%.

The freeze matters because house prices, savings, and pensions keep growing. More estates cross the threshold each year. In 2022/23, around 28,000 estates paid inheritance tax. By 2027/28, the Office for Budget Responsibility forecasts that figure rising to over 40,000.

Married couples and civil partners can combine their allowances. If the first spouse dies and uses none of their nil-rate band — leaving everything to their partner — the survivor inherits the full £325,000 allowance plus their own. That creates a £650,000 threshold for the second death, assuming the exemption transfers correctly. You can read more in our guide to Inheritance Tax Explained Simply.

Residence Nil-Rate Band: Up to £175,000 for Your Home

The residence nil-rate band (RNRB) applies when you leave your main home to children, stepchildren, or grandchildren. It launched in April 2017 at £100,000, rising by £25,000 each year until it hit £175,000 in April 2020. Like the main band, it is frozen until April 2028, now extended to April 2030.

Not everyone qualifies. The home must pass to direct descendants — siblings, nieces, or a partner who is not a parent of your children do not count. If you downsized after 8 July 2015 or sold your home to move into care, a downsizing relief may preserve some or all of the band, provided you leave other assets of equivalent value to qualifying beneficiaries.

The £175,000 is per person. A couple can combine their allowances if the first partner leaves their share of the home (or the full property if owned jointly) within the estate, reaching £350,000 in residence nil-rate band when the second partner dies. Add the main nil-rate bands and the total threshold becomes £1 million: (£325,000 + £175,000) × 2.

The RNRB tapers away for larger estates. For every £2 your estate exceeds £2 million, you lose £1 of residence nil-rate band. An estate worth £2.35 million loses the entire £175,000 allowance. This taper applies before combining allowances with a spouse, so couples with estates above £2 million need to plan carefully.

What Counts Towards Your Estate

Your estate includes everything you own at death: property, savings, investments, cars, jewellery, and personal possessions. Life insurance policies pay out to your estate unless written in trust. Pension death benefits usually sit outside the estate if you nominated beneficiaries, but rules vary by scheme.

Jointly owned property depends on the type of ownership. Joint tenants: your share passes automatically to the surviving owner, but its value still counts in your estate for tax purposes. Tenants in common: your share forms part of your estate and passes according to your will or intestacy rules.

Debts reduce the estate value. Mortgages, credit cards, and funeral costs come off the total before you calculate inheritance tax. If your home is worth £400,000 with a £150,000 mortgage, the net value is £250,000. Other assets then add to that figure to determine whether you exceed the nil-rate band.

Gifts made within seven years of death may be added back into your estate. The seven-year rule applies to gifts above the annual exemption. Smaller gifts (up to £3,000 per tax year, plus any unused allowance from the previous year) stay outside the calculation. Regular gifts from surplus income also escape the charge if documented correctly. Our guide to The 7-Year Rule: How Gifting Before You Die Actually Works explains the taper relief and timings.

How the 40% Rate Works in Practice

Inheritance tax applies only to the portion of your estate above the threshold. If you are single with no children and your estate is worth £500,000, you use the main nil-rate band of £325,000. The taxable amount is £175,000. Tax due: £70,000.

If you leave your home to a child, the residence nil-rate band may apply. Assume the same £500,000 estate includes a £300,000 house. Your combined threshold becomes £325,000 + £175,000 = £500,000. No tax is due because the estate sits exactly at the limit.

For married couples, the sums change. Suppose the first spouse leaves everything to the survivor. No tax is due on the first death thanks to the spouse exemption. When the second spouse dies, their estate can use both nil-rate bands: £650,000 from the main allowances. If the home passes to children, add both residence nil-rate bands: another £350,000. Total threshold: £1 million. An estate worth £1.2 million pays tax on £200,000, which is £80,000 at 40%.

The rate drops to 36% if you leave at least 10% of your net estate to charity. This reduced rate applies to the taxable portion after the nil-rate bands. Charitable gifts themselves are exempt, so they reduce the estate before you calculate the percentage. The maths can be complex — executors often need professional help to confirm whether the lower rate applies. Read more in our guide on Leaving Money to Charity in Your Will.

Transferring Unused Allowances Between Spouses

When the first spouse or civil partner dies, any unused nil-rate band transfers to the survivor. If the first partner left £100,000 to children and the rest to their spouse, they used £100,000 of their £325,000 allowance. The remaining £225,000 transfers. The survivor now has £325,000 of their own plus £225,000 transferred, totalling £550,000.

The same principle applies to the residence nil-rate band, but only if the first death occurred after 6 April 2017 when the band was introduced. If the first partner died before that date, you cannot transfer a residence nil-rate band they never had. However, if they died after April 2017 and left the home (or their share) to the survivor, the unused portion transfers when the survivor dies and leaves property to direct descendants.

Executors claim the transfer by completing IHT forms when applying for probate on the second death. HMRC requires evidence of the first spouse's estate and how much allowance was used. If the first death was decades ago, tracking down documents can be difficult, but HMRC accepts reasonable estimates if original records are lost.

You can transfer allowances even if you remarry. If your first spouse died leaving you their unused band, then you later marry again and your second spouse also dies, you can inherit their unused band too. In theory, you could have more than two nil-rate bands, though this is rare in practice.

Planning to Reduce Your Bill in 2026

The frozen thresholds make planning more urgent. Several reliefs and exemptions can reduce what your estate pays:

• Lifetime gifts: Give assets away more than seven years before death and they leave your estate entirely. Annual exemptions (£3,000 per person) and small gifts (up to £250 per recipient) do not require a seven-year wait.
• Business relief: Shares in an unlisted trading company or an interest in a business partnership may qualify for 50% or 100% relief, removing part or all of their value from your estate.
• Agricultural relief: Farmland and buildings used for farming can qualify for 50% or 100% relief if you owned them for at least two years (or seven if you did not occupy them yourself).
• Pension contributions: Money paid into a pension usually sits outside your estate. Death benefits go to nominated beneficiaries without inheritance tax, though income tax may apply if you die after age 75.
• Trust planning: Placing assets in certain trusts can freeze their value in your estate or remove them altogether, though trusts have their own tax charges and setup costs.

Each method has conditions and risks. Giving away your home sounds simple, but if you continue living there rent-free, HMRC treats it as a gift with reservation and includes it in your estate. Our guide on How to Reduce Inheritance Tax Legally walks through the main strategies and their pitfalls.

What Happens If You Do Nothing

Many people assume the tax will sort itself out or that their estate is too small to worry about. The threshold freeze means estates that were comfortably below £325,000 a decade ago may now exceed it, especially in areas where property values have climbed.

If you die without planning, your executor calculates the tax bill and pays it from the estate before distributing anything to beneficiaries. HMRC must receive payment within six months of death, though you can pay in instalments over ten years if the estate includes property. Interest accrues on unpaid amounts.

Executors cannot access estate funds until they have a grant of probate, but they need to submit IHT forms (and often pay at least part of the tax) before applying for the grant. Many executors use their own money or sell assets quickly to cover the bill, sometimes at a loss. Probate itself has separate fees. Our guide to What Probate Actually Costs in 2026 explains those charges.

Without a will, intestacy rules decide who inherits. If you are married with children, your spouse receives the first £322,000 and your personal possessions, with the remainder split between your spouse and children. Unmarried partners receive nothing under intestacy. The residence nil-rate band still applies if the estate passes to children, but complications arise when beneficiaries are minors or the property must be sold to divide assets.

Changes on the Horizon Beyond 2026

The freeze extension to April 2030 is government policy as of the Autumn Budget 2024. Whether thresholds rise after that depends on the political landscape. Some proposals include abolishing inheritance tax altogether, while others suggest lowering the rate or increasing exemptions. None are law.

Two areas attract ongoing debate. First, pension death benefits: currently outside the estate in most cases, but the government has considered bringing them into scope. Second, agricultural and business reliefs: some argue they allow large estates to avoid tax, while farmers warn that removing relief would force families to sell land to pay bills.

One confirmed change is the digitisation of probate and tax forms. HMRC has been piloting an online inheritance tax service to replace paper IHT400 forms. Rollout continues in stages, aiming for full online filing by 2025/26, though many solicitors still use the paper system for complex estates.

Another shift is enforcement. HMRC increasingly challenges valuations and investigates undeclared assets. Executors must provide accurate figures for property, investments, and personal belongings. Professional valuations are often essential for high-value items like art, antiques, or classic cars. Understating values can lead to penalties, interest, and in serious cases, criminal prosecution.

Practical Steps Before 2026 and Beyond

First, estimate your estate value. List property, savings, investments, pensions (if they might be included), and valuables. Subtract mortgages and debts. If the total exceeds £325,000 (or £500,000 if you own a home and have children), you may face inheritance tax.

Second, review your will. Ensure it names executors, appoints guardians for children, and divides assets clearly. A well-drafted will can include clauses to use both nil-rate bands, redirect assets to trusts, or make charitable gifts that reduce the tax rate to 36%.

Third, consider lifetime planning. Gifts to children or grandchildren, pension top-ups, or trust arrangements take time to implement. The earlier you start, the more options you have. Keep records of gifts and their dates — executors will need them to calculate taper relief if you die within seven years.

Fourth, talk to your family. Many inheritance tax disputes arise because beneficiaries did not know the plan or disagree on how to divide assets. A conversation now can prevent arguments and costly legal battles later.

Finally, get professional advice if your estate is complex. Solicitors and tax advisers charge fees, but the cost is usually far less than the tax you save. Look for advisers regulated by the Solicitors Regulation Authority or a recognised professional body. Check GOV.UK for up-to-date thresholds, rates, and exemptions — rules change, and this article reflects the position in early 2025.

This is general information, not legal advice. Wills and inheritance rules vary — for anything binding, use a regulated solicitor or will-writing service.