Quick facts
- IHT rate: 40% on the value above the threshold
- Nil-rate band: Ā£325,000 (frozen until at least 2030)
- Residence nil-rate band: Up to Ā£175,000 extra when leaving a home to direct descendants
- Spouse exemption: Assets passed to a spouse or civil partner are fully exempt
Inheritance tax in 2026 ā how it actually works
Inheritance tax (IHT) is charged at 40% on the portion of an estate above the threshold.
The standard threshold ā called the nil-rate band ā is Ā£325,000.
It has not moved since 2009, and the government has confirmed it will remain frozen until at least April 2030.
Rising property prices mean far more families are affected than Parliament originally intended.
The residence nil-rate band adds up to Ā£175,000 more
If you leave your main home to your children, stepchildren, or grandchildren, you can claim an additional allowance called the residence nil-rate band (RNRB).
In 2026, the RNRB is worth Ā£175,000.
Combined with the standard nil-rate band, an individual could pass on up to Ā£500,000 free of IHT.
A married couple or civil partners can combine their allowances ā potentially passing on Ā£1 million before IHT applies.
The RNRB is reduced by Ā£1 for every Ā£2 that the estate exceeds Ā£2 million.
Rising house prices have done in a decade what Parliament took 30 years to do ā quietly move IHT from a tax on the very wealthy to a tax on the moderately comfortable.
What counts in an estate
HMRC includes the value of your home, savings, investments, business interests, and most life insurance payouts not written in trust.
Personal belongings, cars, and any gifts you made more than seven years before death are generally excluded.
Gifts made within seven years of death may still attract IHT on a sliding scale ā known as taper relief.
How to reduce your inheritance tax bill
Several legitimate strategies can reduce or eliminate IHT.
Annual gift allowance. Each year, you can give away up to Ā£3,000 tax-free. Any unused allowance rolls over once to the following year.
Small gift exemption. Gifts of up to Ā£250 per person per year are exempt with no limit on the number of recipients.
Normal expenditure from income. Regular gifts made from surplus income ā not capital ā can be fully exempt if they form part of your normal lifestyle.
Pension pots. Defined contribution pension funds generally fall outside your estate for IHT purposes, making them a powerful legacy vehicle.
Life insurance in trust. A life insurance policy written in trust pays out directly to beneficiaries without forming part of your estate.
Business or agricultural relief. Qualifying business assets and farmland can attract 50% or 100% relief.
When is IHT due and who pays it
IHT must generally be paid within six months of the end of the month in which the death occurred.
The executor of the estate is responsible for calculating and paying the bill to HMRC.
If HMRC is not paid in time, interest accrues at the current rate.
Most people settle the bill by using funds from the estate itself ā banks will usually release funds specifically for this purpose.
Bottom line: With the threshold frozen and house prices elevated, IHT is worth reviewing now rather than leaving to chance. A regulated financial planner or solicitor specialising in estate planning can model the impact on your estate in a single appointment.
This article is for informational purposes only and does not constitute financial, legal, or tax advice. Please consult a qualified adviser.
Inheritance tax ā GOV.UKOfficial HMRC guidance on thresholds, reliefs, and how to pay ā
