Inheritance Tax in the UK: Thresholds, Rates & How to Reduce It

Current thresholds

The nil-rate band is £325,000. This means the first £325,000 of an estate is tax-free. On top of that, there is the residence nil-rate band of £175,000, which applies if the deceased's home is left to direct descendants (children, grandchildren, stepchildren). This gives a total threshold of £500,000 per person. Married couples and civil partners can transfer any unused threshold to the surviving partner, giving a combined threshold of up to £1,000,000. These thresholds have been frozen since 2009 (nil-rate band) and are set to remain at these levels until at least April 2030.

The rate

Inheritance tax is charged at 40% on everything above the threshold. So if someone leaves an estate worth £600,000 and their threshold is £500,000, the IHT bill is 40% of £100,000 = £40,000. There is a reduced rate of 36% if the deceased left 10% or more of their net estate to charity in their will. This is worth calculating, as the 4% reduction can sometimes mean the charity gift costs the estate very little overall.

What counts towards the estate

The estate includes: all property (at market value), bank and savings accounts, investments and shares, personal possessions of value (jewellery, art, vehicles), life insurance policies payable to the estate (not those written in trust), business assets, and any gifts made in the seven years before death. Jointly owned assets are included based on the deceased's share. Pension pots are usually outside the estate because they are paid at the trustees' discretion.

What doesn't count (exemptions)

Several important exemptions can reduce or eliminate the IHT bill. Everything left to a spouse or civil partner is completely exempt from IHT, with no upper limit. Everything left to a qualifying charity is exempt. Business Property Relief can reduce the value of qualifying business assets by 50% or 100%. Agricultural Property Relief works similarly for qualifying farmland. Note: from 6 April 2026, 100% BPR and APR relief is capped at the first £1 million of combined qualifying business and agricultural property, with 50% relief on the excess. Assets left to political parties (above a minimum threshold) are also exempt.

The 7-year rule for gifts

Gifts made more than 7 years before death are completely free from inheritance tax. Gifts made within 7 years are potentially chargeable and may reduce the nil-rate band available to the estate. Taper relief reduces the tax on gifts made between 3 and 7 years before death: 0-3 years, 40%; 3-4 years, 32%; 4-5 years, 24%; 5-6 years, 16%; 6-7 years, 8%; 7+ years, 0%. Note that taper relief only applies if the total gifts exceed the nil-rate band. For smaller gifts, it makes no difference.

Annual exemptions and allowances

Several types of gift are immediately exempt from IHT, regardless of the 7-year rule. The annual exemption allows you to give away £3,000 per tax year (you can carry forward one unused year, giving a maximum of £6,000). Small gifts of up to £250 per person per year are exempt (you can give to as many people as you like). Wedding gifts are exempt up to: £5,000 from parents, £2,500 from grandparents, and £1,000 from anyone else. Regular gifts from surplus income are also exempt if they form a regular pattern and come from income, not capital.

The IHT400 form

If the estate is above the IHT threshold, or involves complex assets, you must complete form IHT400 and submit it to HMRC before applying for probate. This is a detailed form (over 20 pages plus supplementary schedules) that requires a full breakdown of everything the deceased owned and owed. Common mistakes include: forgetting to include gifts made in the last 7 years, undervaluing property (HMRC will check), missing joint assets, and not claiming all available exemptions. For simpler estates below the threshold (excepted estates), the estate values are reported as part of the probate application itself, with no separate IHT form needed.

Deadlines and penalties

Inheritance tax must be paid within 6 months of death. After that, interest accrues automatically at the current HMRC rate. The IHT400 form must be filed within 12 months of death. A late filing attracts a £100 penalty initially, escalating to up to £3,000 for continued non-compliance. You can pay IHT on property in 10 equal annual instalments (with interest), which helps if the estate includes a house that takes time to sell. IHT on other assets (cash, shares) must be paid in full before probate is granted.

Paying inheritance tax

IHT must usually be paid before probate is granted, which creates a practical problem: you need probate to access the money, but you need to pay IHT before you get probate. Most banks will release funds directly to HMRC to pay IHT from the deceased's accounts using the "Direct Payment Scheme" (IHT423 form). This avoids the need to find the money from other sources. For property, you can elect to pay in 10 annual instalments, though interest is charged on the outstanding balance.

How much inheritance tax do I have to pay?

It depends on the size of the estate and the available exemptions. The first £325,000 is tax-free (nil-rate band). If the home is left to direct descendants, the first £500,000 may be tax-free. Married couples can combine their allowances for up to £1,000,000 tax-free. Everything above the threshold is taxed at 40% (or 36% if 10%+ is left to charity). Many estates fall below the threshold and pay no IHT at all.

Do I pay inheritance tax on my parents' house?

Only if the total estate (including the house) exceeds the available threshold. If you are a direct descendant (child, grandchild, stepchild) and the house is left to you, the residence nil-rate band of £175,000 applies on top of the standard £325,000, giving a threshold of £500,000. If your parent was widowed and their late spouse did not use their allowances, the threshold could be up to £1,000,000. You pay IHT only on the amount above the threshold.

What is the inheritance tax threshold for 2026?

The nil-rate band remains at £325,000, where it has been since 2009. The residence nil-rate band is £175,000. Together, they give an individual threshold of £500,000, or £1,000,000 for a married couple or civil partnership where the first to die did not use their allowances. The government has confirmed these thresholds will remain frozen until at least April 2030.

How do I reduce inheritance tax?

The most effective ways to reduce IHT are: leave everything to your spouse or civil partner (unlimited exemption), leave 10%+ of the net estate to charity (reduces the rate from 40% to 36%), make use of the annual £3,000 gift exemption each year, make regular gifts from surplus income, consider setting up trusts, and ensure your will takes full advantage of both the nil-rate band and residence nil-rate band. For larger estates, take specialist financial and legal advice.

When is the inheritance tax deadline?

IHT must be paid within 6 months of the date of death. Interest is charged automatically on any amount unpaid after that deadline. The IHT400 form must be filed with HMRC within 12 months of death, with penalties starting at £100 for late filing. For property, you can apply to pay IHT in 10 annual instalments, though interest is charged on the outstanding balance.

Do married couples pay inheritance tax?

No IHT is charged on anything left to a spouse or civil partner. This is the spouse exemption, and it is unlimited. When the surviving spouse later dies, their estate can use both nil-rate bands (their own and any unused portion from the first spouse), giving a combined threshold of up to £1,000,000. This means IHT is only an issue when the second spouse dies and the combined estate exceeds the combined threshold.