Inheritance Tax Threshold 2026: Rates & How It Works

Inheritance Tax is a tax on the estate, the property, money and possessions, of someone who has died. There is normally no tax to pay if either:

• ✓Yes: the value of the estate is £325,000 or less (this is called the 'nil-rate band')
• ✓Yes: everything above £325,000 goes to a spouse, civil partner, a charity or a community amateur sports club

You may still need to report the estate's value even if it's below the threshold. See ‘Reporting and paying’ below.

The nil-rate band has been fixed at £325,000 since the tax year 2009 to 2010. The government has legislated to fix the rate bands, the residence nil-rate band and the taper threshold for the tax years 2028 to 2029 and 2029 to 2030, so the nil-rate band stays at £325,000, the residence nil-rate band at £175,000 and the taper threshold at £2 million. The legislative default was for them to increase in line with the Consumer Prices Index in each year from 2028 onwards.

The standard Inheritance Tax rate is 40%. It is only charged on the part of the estate above the threshold.

The estate can pay a reduced rate of 36% on some assets if 10% or more of the ‘net value’ (the estate's total value after debts) is left to charity in the will. GOV.UK's reduced rate calculator works out how much you would need to leave to qualify.

On top of the £325,000 threshold, there is a separate residence nil-rate band worth up to £175,000 where a home is left to direct descendants, children, grandchildren, step, adopted or foster children, and their own children. Together this gives a threshold of up to £500,000 for one person.

• In GOV.UK's examples the residence nil rate band is the lower of the value of the home and the maximum available (£175,000), and if the home is worth less than the maximum you cannot set the unused amount against the other assets in the estate
• The home can be left to the direct descendants in the will, under the rules of intestacy or by some other legal means
• Someone who sold, gave away or downsized to a less valuable home on or after 8 July 2015 can still pass on some or all of the residence nil-rate band, under separate downsizing rules, as long as their direct descendants inherit at least some of the estate

If you're married or in a civil partnership and your estate is worth less than your own threshold, any unused nil-rate band and residence nil-rate band can be transferred to your partner's estate when they die, on top of their own. There is normally no Inheritance Tax to pay if you leave everything above the threshold to your spouse or civil partner.

Some gifts you give while you're alive may be taxed after your death. Each tax year you can also give away some money or possessions free of Inheritance Tax, depending on which allowances you use:

• ✓Yes: £3,000 in total, your 'annual exemption', to one person or split between several (any unused amount can be carried forward to the next tax year, but only for one tax year)
• ✓Yes: as many gifts of up to £250 per person as you want each tax year, as long as you have not used another allowance on the same person
• ✓Yes: wedding or civil partnership gifts of up to £5,000 to a child, £2,500 to a grandchild or great-grandchild, or £1,000 to anyone else
• ✓Yes: regular payments to another person, such as helping with their living costs, with no limit on how much you can give tax free, as long as you can afford the payments after meeting your usual living costs and you pay from your regular monthly income

No tax is due on any gifts you give if you live for 7 years after giving them, unless the gift is part of a trust. If you die within 7 years of giving a gift and there is Inheritance Tax to pay on it, the amount of tax due depends on when you gave it. Gifts given in the 3 years before your death are taxed at 40%. Gifts given 3 to 7 years before your death are taxed on a sliding scale known as ‘taper relief’:

Business Relief and Agricultural Relief allow some assets to be passed on free of Inheritance Tax or with a reduced bill. The government announced reforms to both reliefs at Autumn Budget 2024. This is how the allowance for 100% relief has changed:

• Autumn Budget 2024: the government announced that the 100% rate of relief would continue for the first £1 million of combined agricultural and business property, and be 50% thereafter
• 23 December: the government announced that the Agricultural and Business Property Reliefs threshold will be increased from £1m to £2.5m when it is introduced in April 2026
• on or after 6 April 2026, the combined amount of 100% Agricultural Relief and Business Relief allowed against an estate cannot exceed £2.5 million, and in all other cases the rate is 50%
• the government announced that the allowance will be transferable between spouses, so a surviving spouse or civil partner will be able to pass on up to £5 million of qualifying agricultural and business assets tax free, on top of existing nil-rate bands

Currently, most unused pension funds and death benefits fall outside a person's estate for Inheritance Tax. From 6 April 2027, most unused pension funds and pension death benefits will be brought within the value of the estate.

• the change only affects deaths on or after 6 April 2027, if the pension scheme member dies before that date, today's rules still apply even if benefits are paid out afterwards
• Finance Act 2026 received Royal Assent on 18 March 2026 and made the changes to bring these reforms into effect for deaths on or after 6 April 2027
• personal representatives will be responsible for reporting, and liable for paying, any Inheritance Tax due on what the technical note calls notional pension property

Most estates are ‘excepted estates’. You do not have to give full details of an estate's value if it is an excepted estate, there is no Inheritance Tax to pay and none of the reasons for sending full details apply. An estate is usually an excepted estate if any of the following apply:

• ✓Yes: its value is below the £325,000 threshold
• ✓Yes: the estate is worth £650,000 or less and any unused threshold is being transferred from a spouse or civil partner who died first
• ✓Yes: the person who died left everything to a spouse or civil partner living in the UK or to a qualifying charity, and the estate is worth less than £3 million
• ✓Yes: the person who died was living permanently outside the UK when they died, and the value of their UK assets is £150,000 or less

Where full details are needed (form IHT400), or Inheritance Tax is due, here is the process:

See also our guides to Probate, What to Do When Someone Dies and Dying Without a Will.

Funds from the estate are used to pay Inheritance Tax to HM Revenue and Customs (HMRC). Here is what the official guidance for each nation says:

• Scotland: mygov.scot points you to GOV.UK for how Inheritance Tax works, including the rates, thresholds, reliefs and exemptions, and says there is normally no Inheritance Tax to pay if the value of the estate is below the threshold or the estate is left to a spouse or civil partner, a charity or a community amateur sports club. GOV.UK says the grant of representation is called 'confirmation' in Scotland
• Wales: this guide follows GOV.UK's Inheritance Tax guide, which does not set out a separate rule for Wales
• Northern Ireland: nidirect says some estates have to pay Inheritance Tax, that some or all of it must be paid before the court will issue a Grant of Probate or Letters of Administration, and to contact HMRC as soon as you can

From 6 April 2025 the domicile and deemed domicile rules were replaced by new long-term UK resident rules. You are a long-term UK resident in a tax year if you have been tax resident in the UK for the previous 10 consecutive years, or for a total of 10 years or more within the previous 20 years. If you are a long-term UK resident, your non-UK assets may be subject to Inheritance Tax if you make a transfer of assets or die. For deaths on or before 5 April 2025, the person who died is treated as being based in the UK if their permanent home (domicile) was in the UK, they lived in the UK for 15 of the last 20 years, or they had their permanent home in the UK at any time in the last 3 years of their life.