Inheritance tax is one of the most misunderstood areas of UK personal finance. People either worry about it unnecessarily — most estates don't owe a penny — or they don't think about it at all when they should.
This guide cuts through the jargon. Here's what you actually need to know.
The Basics: What Is Inheritance Tax?
Inheritance tax (IHT) is a tax on the estate — the property, money, and possessions — of someone who has died. In the UK, it's charged at 40% on the value of the estate above a certain threshold.
The key word there is above. Most estates pay nothing at all.
The Nil-Rate Band: £325,000
Every individual in the UK has a nil-rate band of £325,000. This is the amount you can pass on without any inheritance tax being due.
This threshold has been frozen at £325,000 since 2009 — and is confirmed frozen until at least April 2030. As property values rise, more estates are being pulled into the IHT net as a result.
The Residence Nil-Rate Band: Up to £175,000
If you leave your home (or a share of it) to your direct descendants — children, grandchildren, or stepchildren — you may qualify for an additional allowance called the Residence Nil-Rate Band (RNRB).
In 2026, this is £175,000 per person.
This means a single person can potentially pass on up to £500,000 free of inheritance tax (£325,000 + £175,000), provided their home forms part of the estate.
Important: The RNRB tapers away for estates worth more than £2 million, reducing by £1 for every £2 above that threshold.
Married Couples and Civil Partners: Up to £1 Million
Assets passed between spouses or civil partners are completely exempt from inheritance tax — regardless of value.
Better still, any unused nil-rate band and RNRB can be transferred to the surviving spouse. This means a married couple can effectively pass on up to £1,000,000 to their children free of IHT:
Maximum IHT-Free Allowances (2025/26)
Single person
= £500,000 total
Married couple / civil partners (combined)
= £1,000,000 total
7-Year Gifting Rule — Taper Relief
| Years before death | IHT rate on gift | Reduction |
|---|---|---|
| 0–3 years | 40% | 0% |
| 3–4 years | 32% | 20% |
| 4–5 years | 24% | 40% |
| 5–6 years | 16% | 60% |
| 6–7 years | 8% | 80% |
| 7+ years | 0% | 100% |
Taper relief only applies to gifts exceeding the annual exemption (£3,000/year).
Gifts: The 7-Year Rule
One of the most effective ways to reduce an IHT liability is through gifting — but timing matters.
Gifts made more than 7 years before death are completely exempt from IHT. Gifts made within 7 years are known as Potentially Exempt Transfers (PETs) and may be included in the estate.
The taper relief rates and the full breakdown of allowances are shown in the infographic above.
Annual Gift Exemptions
You don't need to wait 7 years for every gift. Certain gifts are immediately exempt from IHT:
- Annual exemption: £3,000 per year per person (unused allowance can carry forward one year)
- Small gifts: Up to £250 per person, per year (to any number of people)
- Wedding gifts: £5,000 from a parent, £2,500 from a grandparent, £1,000 from anyone else
- Regular gifts from income: Gifts made regularly from surplus income (not capital) are exempt — but must be documented
The 2026 Pension Rule Change
From April 2027, unused pension funds will be included in the estate for IHT purposes. This is a significant change — previously, pensions sat outside the estate. Anyone who has been using a pension as part of their IHT planning strategy should review their position with a financial adviser.
What Costs HMRC £8.7 Billion a Year
HMRC collected £8.7 billion in inheritance tax in 2025/26. Most of that came from estates that either hadn't planned at all, or hadn't updated their plans as their estate grew.
The most common avoidable mistakes:
- Not using annual gift exemptions
- Not updating a will after major life events
- Not documenting regular gifts from income
- Not making use of the RNRB due to the way property was held
When to Get Professional Advice
IHT planning can get complex quickly — especially for larger estates, business owners, or anyone with assets in multiple jurisdictions. The guidance above is a starting point, not financial advice.
If your estate is likely to exceed £500,000, or if you have a pension, business interests, or foreign property, a qualified financial adviser can help you structure things properly.
Beqst's IHT tracker helps you stay on top of your gifting, flag taper relief positions, and keep a clear record of your estate value over time. Start for free →