Inheritance Tax After a Death: UK Thresholds and Exemptions (2026/27)
Inheritance tax is one of the most stressful parts of dealing with an estate after someone passes away. The rules are complicated, the forms are long, and the tax must be paid before probate is granted. This guide explains the current thresholds, the main exemptions, and how the whole process works in plain English.
Key figures for 2026/27
- + Nil-rate band: £325,000 (frozen until 5 April 2031)
- + Residence nil-rate band: £175,000 (if a home is left to direct descendants)
- + Combined threshold for a couple: Up to £1,000,000
- + IHT rate: 40% on the amount above the threshold
- + Reduced rate: 36% if 10% or more of the estate is left to charity
Who pays inheritance tax?
Inheritance tax (IHT) is paid on the estate of someone who has died, not by the people who inherit. The executor (or administrator, if there is no will) is responsible for calculating and paying the tax from the estate before distributing assets to beneficiaries. In practice, most estates do not pay any inheritance tax at all. HMRC data shows that only around 4% to 5% of UK deaths result in an IHT liability, though that percentage is rising as property values increase while the threshold stays frozen.
Even if no tax is due, you may still need to complete inheritance tax forms as part of the probate application. Whether you need to fill in the full IHT400 form or just the shorter form within the probate application depends on the size and complexity of the estate.
The nil-rate band (£325,000)
Every individual has a nil-rate band of £325,000. This means the first £325,000 of their estate is tax-free. Anything above that threshold is taxed at 40%. The nil-rate band has been frozen at £325,000 since 2009, and at Budget 2025 the government extended the freeze again, so it stays at this level until 5 April 2031. Because property values and savings have risen significantly since 2009, more and more estates are crossing this threshold each year.
The estate includes everything the person owned at the date of death: property, savings, investments, personal possessions, and the value of any gifts made within the 7 years before death. It also includes any assets held in certain types of trust and the payout from life insurance policies that are not written in trust. One change to keep in mind if you are planning ahead: for deaths on or after 6 April 2027, most unused pension funds and pension death benefits will also count as part of the estate for inheritance tax, which is not the case today.
The residence nil-rate band (£175,000)
The residence nil-rate band (RNRB) provides an additional £175,000 tax-free allowance on top of the standard nil-rate band. It applies when a property (or a share of a property) that the person lived in as their home is left to their direct descendants: children, grandchildren, stepchildren, adopted children, or foster children.
This means a single person leaving their home to their children could have a total IHT-free allowance of £500,000 (£325,000 + £175,000). A married couple could have up to £1,000,000 between them if both allowances are transferable (see below).
There is an important restriction: the RNRB is tapered for estates worth more than £2,000,000. It reduces by £1 for every £2 the estate exceeds £2,000,000. This means the RNRB is completely lost when the estate is worth £2,350,000 or more.
If the person had downsized or sold their home after 8 July 2015, a "downsizing" provision may still allow the estate to claim the RNRB, provided the smaller property (or other assets of equivalent value) is left to direct descendants.
Transferable allowances between spouses
When the first spouse or civil partner dies, they often leave everything to the surviving partner. Because transfers between spouses are completely exempt from IHT (see below), the first spouse's nil-rate band is not used. The unused portion can then be transferred to the surviving spouse's estate when they die.
This works on a percentage basis, not a fixed amount. If the first spouse used none of their nil-rate band, 100% transfers. If they used 50%, then 50% transfers. The transferred percentage is applied to the nil-rate band at the time of the second death, not the first. For example, if the first spouse died in 2005 when the nil-rate band was £275,000 and used none of it, 100% transfers. If the second spouse dies in 2026 when the band is £325,000, the transferred amount is 100% of £325,000 = £325,000.
The same principle applies to the residence nil-rate band. If the first spouse did not use their RNRB, the unused portion transfers to the survivor's estate. This is how a couple can reach the combined £1,000,000 threshold.
Main exemptions
Spouse or civil partner exemption
Everything left to a spouse or civil partner is completely exempt from IHT, regardless of the amount. For deaths on or after 6 April 2025, the test is whether the surviving spouse is a long-term UK resident rather than UK domiciled, as domicile was replaced for inheritance tax purposes. Where the survivor does not meet that test, the exemption is capped rather than unlimited. This is the most important exemption and the reason most married couples pay no IHT on the first death. Note: this does not apply to unmarried partners, no matter how long they have lived together. See our guide on unmarried partners' rights.
Charity exemption
Gifts to UK-registered charities are completely exempt from IHT. If the person leaves 10% or more of their net estate to charity, the rate of IHT on the rest drops from 40% to 36%. This can make a significant difference on large estates and sometimes means leaving more to charity actually results in beneficiaries receiving more overall.
Business Property Relief (BPR)
Certain business assets can qualify for 50% or 100% relief from IHT. This includes shares in unlisted companies, business assets used in a partnership, and agricultural land and buildings. The person must have owned the assets for at least 2 years. Note: the rules changed for deaths on or after 6 April 2026. The first £1 million of combined agricultural and business property still attracts 100% relief, but amounts above that get 50% relief, which works out at an effective rate of 20% against the 40% IHT rate. That £1 million allowance is itself frozen until 5 April 2031. This is a significant change for farming families.
Normal expenditure out of income
Regular gifts made from income (not capital) that do not affect the giver's standard of living are exempt from IHT. This is a powerful but often overlooked exemption. For example, a parent who pays £500 a month toward a grandchild's school fees from their pension income, without reducing their own standard of living, can do so without it counting as a gift for IHT purposes.
Gifts made before death
Gifts made during someone's lifetime can be brought back into the estate for IHT purposes if the person dies within 7 years of making them. These are called "potentially exempt transfers" (PETs). If the person survives 7 years, the gift is completely exempt.
If the person dies within 7 years, taper relief may reduce the tax:
| Years before death | Tax rate on the gift |
|---|---|
| 0 to 3 | 40% |
| 3 to 4 | 32% |
| 4 to 5 | 24% |
| 5 to 6 | 16% |
| 6 to 7 | 8% |
| 7+ | 0% |
Certain small gifts are always exempt, regardless of the 7-year rule:
- + Up to £3,000 per year in total (the annual exemption; can carry forward one unused year)
- + Small gifts of up to £250 per person per year (to different recipients from the annual exemption)
- + Wedding gifts: £5,000 from a parent, £2,500 from a grandparent, £1,000 from anyone else
How to calculate the tax
The basic calculation is:
- Add up the total value of the estate (property, savings, investments, possessions, life insurance not in trust)
- Add back any gifts made within the last 7 years
- Subtract any debts (mortgage, loans, credit cards, funeral costs)
- Subtract any exempt assets (spouse transfers, charity gifts)
- This gives you the net estate
- Subtract the nil-rate band (£325,000) and the residence nil-rate band (£175,000 if applicable)
- Multiply the remaining amount by 40% (or 36% if the charity condition is met)
HMRC provides an online calculator at GOV.UK to help with the calculation. For complex estates, getting professional advice is strongly recommended.
How and when to pay
The deadline
IHT is due by the end of the sixth month after the month of death. For example, if someone dies on 15 March 2026, the tax is due by 30 September 2026. Interest is charged on late payments. You must pay at least some of the tax before applying for probate, because HMRC has to confirm to the court that enough tax has been paid. In England and Wales, HMRC now does that by sending you a letter or email containing a unique code, which you quote on the probate application. The old IHT421 probate summary is no longer used there. You will usually get the code within 20 working days of HMRC receiving your IHT400 or your payment, whichever is later. Northern Ireland still uses form IHT421, and in Scotland the equivalent application is for confirmation.
Where the money comes from
This creates a difficult chicken-and-egg situation: you need to pay IHT before getting probate, but you often need probate to access the money to pay IHT. Solutions include: using the Direct Payment Scheme (banks can pay IHT directly to HMRC from the person's account), using joint accounts or your own savings (to be reimbursed from the estate later), or borrowing from a specialist estate administration lender.
Paying in instalments
IHT on certain assets (mainly property, land, and shares in private companies) can be paid in 10 equal annual instalments. This is useful when the estate is asset-rich but cash-poor, for example when a family home needs to be sold. Interest is charged on the outstanding balance, but this can be more manageable than finding a lump sum upfront.
Which forms to complete
The form you need depends on the size of the estate:
- + Excepted estates, where no separate IHT form is needed and you report the estate value within the probate application instead. There are three routes, each with other conditions to meet. Low value estates: gross value up to £325,000, or up to £650,000 where a nil-rate band is transferred from a spouse or civil partner who died first. Exempt estates: gross value up to £3,000,000, where what is left after the spouse and charity exemptions is no more than £325,000. Foreign domiciliaries (for deaths from 6 April 2025, people who were not long-term UK residents): UK assets of no more than £150,000, made up only of cash or quoted shares and securities.
- + All other estates: Complete the full IHT400 form and any relevant supplementary pages. This is a substantial form (over 16 pages) and requires detailed valuations of every asset and liability. Submit it to HMRC with any tax payment due.
Full guidance is available at GOV.UK: IHT400.
Frequently asked questions
Do I need to pay inheritance tax on money I inherit?
No. IHT is paid by the estate before the money is distributed to beneficiaries. Once you receive your inheritance, you do not pay income tax or capital gains tax on it (though you may pay CGT if you later sell an inherited asset for more than its probate value).
Is life insurance subject to inheritance tax?
If the life insurance policy is written in trust, the payout goes directly to the beneficiaries and is not part of the estate. If it is not in trust, the payout forms part of the estate and may be subject to IHT. This is one of the most commonly missed planning points.
What about jointly owned property?
If the property was held as joint tenants, their share passes automatically to the surviving owner and is valued for IHT purposes at the date of death. If held as tenants in common, their share forms part of the estate and is distributed according to their will (or intestacy rules).
Can I reduce the IHT bill after someone has died?
Options are limited after death, but a deed of variation allows beneficiaries to redirect their inheritance within 2 years of the death. For example, a beneficiary could redirect their share to a charity or to the next generation, potentially reducing the IHT liability. All affected beneficiaries must agree.
Need support?
- HMRC inheritance tax helpline: 0300 123 1072 (Mon-Fri 9am-5pm)
- Cruse Bereavement Support: 0808 808 1677 (free)
- Samaritans: 116 123 (free, 24 hours)
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Other costs to expect: See our full cost breakdown covering funeral fees, death certificates, probate, and solicitors. If you need to notify banks and financial institutions, use our notification guide with direct bereavement phone numbers.
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A realistic timeline for every stage of probate, from application to final distribution
Who to Notify
Phone numbers, online forms, and step-by-step processes for every bank, utility, and insurer
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