Inheritance tax threshold UK 2026: what you need to know

The standard inheritance tax threshold in the UK is £325,000 per person. Above that amount, an estate is usually taxed at 40%. This threshold has been frozen at £325,000 since April 2009 and is now set to stay frozen until 5 April 2031, confirmed by the 2025 Autumn Budget.

That freeze is the single most important fact for most families to understand. Property values have roughly doubled since 2009 while the threshold has stayed the same. More estates are pulled into the tax each year without anything changing about the rules themselves. In 2022/23, the most recent year with final data, 4.62% of estates paid inheritance tax. HMRC receipts from IHT reached £8.4 billion in 2024/25 and continue to rise.

This guide explains what the threshold is, how it combines with other allowances, and what to check if you are dealing with an estate that may be close to the limit.

The headline numbers for 2026/27

Three figures define the inheritance tax position for most estates.

The standard nil rate band (NRB) is £325,000 per person. Any estate below this threshold pays no inheritance tax.

The residence nil rate band (RNRB) adds up to £175,000 per person when a home passes to a direct descendant. Combined with the NRB, this can shelter up to £500,000 per person.

The spouse exemption means anything left to a spouse or civil partner passes free of inheritance tax, regardless of amount. Unused allowances transfer to the surviving spouse.

For a married couple or civil partners, full use of both NRB and RNRB allowances can take an estate of up to £1 million out of inheritance tax entirely.

Anything above the available threshold is usually taxed at 40%. Where at least 10% of the net estate is left to charity, the rate on the remaining taxable amount drops to 36%.

How the transfer between spouses works

This is the mechanism that turns £500,000 into £1 million for a married couple. It catches people out because it is not automatic.

When the first spouse dies, anything left to the surviving spouse is exempt from inheritance tax under the spouse exemption. That leaves the first spouse's NRB and RNRB unused. The unused percentage transfers to the surviving spouse's estate.

On the second death, the surviving spouse's estate can claim both sets of allowances. In the simplest case, where the first spouse left everything to the second and the second spouse leaves everything to direct descendants including the family home, the combined available allowance is £325,000 + £325,000 + £175,000 + £175,000 = £1 million.

The executor of the second estate has to claim the transferable allowances. It is not applied automatically. Form IHT402 is used for the NRB transfer and IHT436 for the RNRB. The claim needs to be made within two years of the second death or the relief can be lost.

The rules are backdated. If the first spouse died many years ago, the transferable allowance still applies, based on the percentage of their nil rate band that was unused at the time.

For the full detail on the RNRB, including the £2 million taper, direct descendants test, and downsizing relief, see our guide on the residence nil rate band.

What counts towards the estate

The inheritance tax calculation includes everything owned by the deceased at the date of death, plus some gifts made in the seven years before death, less allowable debts and funeral expenses.

Counted in:

• Property (principal residence and any other properties)

• Cash, bank accounts, savings, investments

• Personal possessions, vehicles, jewellery

• Business interests and partnership shares (subject to business relief)

• Life insurance policies not written in trust

• Certain gifts made in the seven years before death

Not counted:

• Anything passing to a spouse or civil partner (exempt)

• Gifts to registered charities and some national institutions

• Life insurance policies written in trust for named beneficiaries

• Most defined contribution pensions (until April 2027, see below)

Debts are deducted before the tax is calculated. So are reasonable funeral expenses and the costs of administering the estate.

The seven-year rule on gifts

Gifts made during the deceased's lifetime can fall inside or outside the estate depending on when they were made.

Gifts made more than seven years before death are outside the estate entirely. They do not count.

Gifts made within seven years of death are "potentially exempt transfers" (PETs). They are added back into the estate calculation if the giver dies within the seven-year window.

If the gift causes the estate to exceed the NRB, inheritance tax is payable on the excess, but taper relief can reduce the rate. Taper relief does not reduce the value of the gift counted in the estate, only the tax rate that applies to it:

Years between gift and deathTax rate on gift0 to 3 years40%3 to 4 years32%4 to 5 years24%5 to 6 years16%6 to 7 years8%7+ years0%

A few gifts are always exempt regardless of the seven-year rule: the £3,000 annual gift allowance, small gifts of up to £250 per person per year, gifts on marriage (£5,000 to a child, £2,500 to a grandchild), regular gifts out of surplus income, and gifts to charities.

Record-keeping matters. HMRC routinely asks about gifts made in the seven years before death. Families with poor records can end up paying tax on gifts that would otherwise have been exempt, simply because they cannot prove when or how they were made.

Changes in effect from April 2026

Several changes took effect on 6 April 2026 that affect larger estates, particularly those with business or agricultural assets.

Business and agricultural property relief capped. Before April 2026, qualifying business property and agricultural property could receive 100% relief from inheritance tax without limit. From April 2026, 100% relief is capped at a combined £2.5 million per person for both reliefs. Above that, qualifying assets receive 50% relief, which translates to an effective 20% inheritance tax rate.

This allowance is transferable between spouses, so a farming or business couple can potentially pass up to £5 million of qualifying assets tax-free.

AIM shares relief reduced. Many investors held shares on the Alternative Investment Market specifically because qualifying AIM shares previously attracted 100% business relief after a two-year holding period. From 6 April 2026, this is reduced to 50% relief, meaning an effective 20% inheritance tax rate on AIM holdings above the £2.5 million BPR allowance.

Families with estates that relied on these reliefs should take professional advice. A will or plan put in place before October 2024 may no longer produce the outcome it was designed for.

The major change coming in April 2027

From 6 April 2027, most defined contribution pensions will be included in the estate for inheritance tax purposes.

Under the current rules, most pensions pass outside the estate. They can be paid to nominated beneficiaries under the pension's discretionary trust structure and do not count towards the inheritance tax calculation. This has been one of the most significant tax-planning tools for wealthier households.

After April 2027, pension values will be added to the rest of the estate and will count towards the £2 million taper threshold for the RNRB. Estates that currently fall below the taper will, after the change, potentially be pulled above it and lose some or all of the residence nil rate band.

The OBR forecasts that the change will increase the share of estates paying IHT from around 5% to around 8%.

This is not yet in effect. It takes effect for deaths from 6 April 2027 onwards. Anyone with significant pension savings should factor this into planning conversations with a solicitor or financial adviser well before the change, given the seven-year rule on gifts.

When the estate has to pay

Inheritance tax is paid by the executor or administrator out of the estate, not by the beneficiaries.

The deadline is the end of the sixth month after the month of death. A death in December 2025, for example, means IHT must be paid by 30 June 2026.

This creates a cashflow problem for many estates. The executor often cannot access the estate's assets (particularly property) until probate is granted, but probate itself cannot usually be granted until at least some inheritance tax has been paid. The workarounds include:

• HMRC's direct payment scheme, which allows banks and building societies to pay IHT directly from the deceased's account to HMRC before probate.

• Instalment option for assets that cannot easily be sold (property, business interests, certain shares). IHT on these can be paid in ten annual instalments, though interest is charged on outstanding amounts.

• Bridging loan or estate loan, available from specialist lenders where the cash position does not allow otherwise.

Interest starts to run on unpaid inheritance tax from the due date. The current HMRC rate is significantly above commercial borrowing rates for most estates, so delay is expensive.

Quick orientation: do you need to worry about IHT?

A rough-and-ready check.

If the total value of the estate (property, savings, investments, pensions ignored for now, less debts) is below £325,000 and the deceased was single, there is no inheritance tax to pay.

If the deceased was married or in a civil partnership and had not used their allowances, the combined available threshold could be up to £1 million. Work out the gross estate, subtract debts and funeral costs, and compare to the available threshold.

If the estate is close to or above the threshold, or if there are business assets, AIM shares, substantial pensions, or gifts in the last seven years, professional advice is worth the cost. The difference between a well-managed and poorly-managed IHT position on a £1 million estate can easily be £50,000 to £100,000 in tax.

For the broader practical context of administering an estate, see our guides on what is probate, how long does probate take in the UK, and intestacy rules UK.