Inheritance Tax (IHT) is a tax on the estate of someone who has died. The estate includes all property, possessions, money and investments owned at the date of death, minus any debts (mortgages, loans, etc.) and funeral expenses.
IHT is charged at 40% on the value of an estate above certain thresholds. It must be paid (usually within 6 months of the date of death) before assets can be distributed to beneficiaries.
Roughly 1 in 20 UK estates pay IHT, but rising property values mean more estates are crossing the threshold each year. Understanding IHT is increasingly important for homeowners and anyone planning to leave assets to family members.
Every individual has a nil-rate band (NRB) of £325,000. This is the tax-free IHT threshold — you pay no inheritance tax on the first £325,000 of an estate.
Above £325,000, IHT is charged at 40% (or 36% if you leave at least 10% of the net estate to charity).
The nil-rate band is transferable between spouses. If a husband dies and leaves everything to his wife, his unused NRB transfers to her. When she dies, her estate has a combined NRB of £650,000 before IHT applies.
Since 2017, there is an additional allowance called the Residence Nil-Rate Band (RNRB) — also called the "family home allowance." In 2026/27, this is £175,000 per person.
The RNRB applies when:
Like the NRB, the RNRB is also transferable between spouses. A married couple can therefore combine to have a potential tax-free allowance of up to £1,000,000:
RNRB taper: For estates over £2 million, the RNRB is tapered away at £1 for every £2 above £2 million. At £2.35 million, the RNRB is fully withdrawn.
Estate value: £500,000
Nil-rate band: −£325,000
Residence nil-rate band (home left to children): −£175,000
Taxable estate: £0
IHT payable: £0
Estate value: £700,000
Nil-rate band: −£325,000
Residence nil-rate band: −£175,000
Taxable estate: £200,000
IHT at 40%: £80,000
Estate value: £1,400,000
Combined NRB (transferred): −£650,000
Combined RNRB (home left to children): −£350,000
Taxable estate: £400,000
IHT at 40%: £160,000
Use our calculator to see your tax breakdown and net pay for 2026/27.
Take-Home Pay Calculator →Gifts made during your lifetime can reduce your estate for IHT purposes — but only if you survive for 7 years after making the gift. These are called Potentially Exempt Transfers (PETs).
If you die within 7 years of making a gift, it is brought back into your estate and may be subject to IHT. However, there is taper relief on gifts made more than 3 years before death:
| Years before death | IHT rate on the gift |
|---|---|
| Less than 3 years | 40% |
| 3–4 years | 32% |
| 4–5 years | 24% |
| 5–6 years | 16% |
| 6–7 years | 8% |
| More than 7 years | 0% (exempt) |
Not everything is subject to IHT. Key exemptions include:
IHT planning is a specialist area, but common strategies include:
IHT planning should always be done with a qualified solicitor or financial adviser who specialises in estate planning. The rules are complex and individual circumstances vary significantly.