Inheritance Tax Explained: Thresholds, Rates & Exemptions (2026/27)

Inheritance Tax (IHT) is charged on the value of what you leave behind when you die. It catches more estates than people expect, largely because the thresholds have stayed frozen for years while property and asset values have risen. Here’s how the rules and allowances work for the 2026/27 tax year.

What is Inheritance Tax?

Inheritance Tax is a tax on the value of your estate, your property, money, and possessions, above a tax-free threshold. It’s charged on the net value of the estate, after debts and funeral costs are deducted, and it’s usually paid out of the estate before assets are distributed to beneficiaries. It’s the executor or personal representative of the person who died who’s responsible for reporting it to HMRC and arranging payment, following the tax rules set out in HMRC’s own Inheritance Tax manual and the guidance on GOV.UK.

Not every estate pays it. Most don’t, because of the allowances and exemptions below. Knowing which of these applies to your circumstances is really the starting point for any Inheritance Tax planning, whether you’re valuing an estate for Inheritance Tax purposes after a death or thinking ahead for your own.

It’s worth being clear about who actually pays it. Beneficiaries don’t normally pay tax on things they inherit personally, the estate itself is subject to Inheritance Tax, and the bill is settled from estate funds before anything is distributed. This is why probate and an accurate estate valuation usually need to be sorted out before beneficiaries receive their share.

The nil-rate band: £325,000

Every individual has a nil-rate band of £325,000. This is the main Inheritance Tax threshold, the tax-free allowance you can leave without any Inheritance Tax being due. It applies whether you’re single, married or in a civil partnership, divorced, or widowed, it belongs to you personally.

Anything in your estate above this threshold is normally taxed at 40%, the standard rate, as confirmed in GOV.UK’s Inheritance Tax guidance.

The standard rate: 40%

The 40% rate applies to the portion of the estate above the available nil-rate band(s). For example, an estate worth £500,000 with a £325,000 nil-rate band available would pay 40% on the remaining £175,000, a bill of £70,000.

Spouse and civil partner exemption

Anything left to a UK-domiciled spouse or civil partner is entirely exempt from Inheritance Tax, with no upper limit. This spouse exemption applies equally to a marriage and a civil partnership, and it means a married couple, or civil partners, can in effect defer Inheritance Tax until the second death.

There’s a further benefit: if the first spouse to die doesn’t use their full nil-rate band (because most or all of the estate passed to the surviving spouse), the unused percentage can be transferred to the survivor’s estate. In practice, this means a surviving spouse’s estate can benefit from up to £650,000 of combined standard nil-rate band (2 x £325,000), before the residence nil-rate band is even considered.

The residence nil-rate band

On top of the standard nil-rate band, there’s a further tax-free allowance called the residence nil-rate band (RNRB), worth £175,000. This applies when a main home (or its value) is left to a direct descendant, meaning children, stepchildren, adopted children, or grandchildren.

Combined with the standard nil-rate band, this means:

The RNRB tapers away for larger estates, it reduces by £1 for every £2 the estate’s value exceeds £2 million, and disappears entirely once the estate reaches roughly £2.35 million (for a single person).

The reduced 36% rate for charitable giving

If 10% or more of the net estate (after deducting the nil-rate band and any other reliefs) is left to charity, the rate on the remaining taxable estate drops from 40% to 36%. Gifts to a registered charity, and to a small number of other bodies such as a community amateur sports club, are exempt from Inheritance Tax in their own right, on top of this reduced rate on the rest of the estate. This is a genuine incentive built into the rules, worth checking as part of any estate planning, particularly for larger estates already close to or above the taper threshold.

Other reliefs worth knowing about

Two further reliefs can reduce an Inheritance Tax bill, or remove it on certain assets entirely. Business property relief can apply to a trading business or a shareholding in one, and agricultural property relief can apply to farmland and farmhouses. Both are subject to detailed conditions on ownership period and how the asset is used, so they’re rarely straightforward to claim without checking the specifics against HMRC’s rules. An independent financial adviser or accountant can help establish whether either relief genuinely applies before you rely on it.

Working out what you might owe

Inheritance Tax calculations involve several moving parts, the standard nil-rate band, any transferred allowance from a late spouse, the residence nil-rate band and its taper, lifetime gifts made in the previous seven years, and any charitable giving. Whether an estate is liable for Inheritance Tax at all, and how much tax is due, depends on adding all of this up rather than looking at any single allowance in isolation. Our free Inheritance Tax calculator gives a quick estimate of the tax payable based on your estate’s value and circumstances.

Lifetime gifts are one of the more overlooked ways to reduce an Inheritance Tax bill, since gifts made more than seven years before death are usually outside the estate altogether. Our separate guide to the nil-rate band and gifting rules covers this in more detail.

Reporting and paying Inheritance Tax

Where an estate is subject to Inheritance Tax, the executor usually reports it to HMRC using the IHT400 form (or the shorter IHT205-style process for simpler, clearly excepted estates), alongside the application for probate. Any tax due is normally expected within six months of the end of the month in which the death occurred, interest can start to accrue after that point, even though probate itself can take considerably longer to finalise. Where the estate includes property, funds are sometimes released early from the estate, or a specific HMRC payment arrangement is used, precisely because probate and the tax deadline don’t always run to the same timetable.

Getting the detail right

Inheritance Tax is one of the areas where small differences in how an estate is structured, or how gifts were made during someone’s lifetime, can make a real difference to the final bill. If you’re dealing with an estate, or planning ahead for your own, it’s worth getting the calculation checked properly rather than relying on rough estimates, especially where property, transferred allowances, or lifetime gifts are involved.