Key facts
- The nil-rate band is £325,000; adding the £175,000 residence allowance lifts the threshold to £500,000 for one person
- Married couples and civil partners can combine allowances for up to £1,000,000 when passing to descendants
- Inheritance Tax is 40% on the estate above the allowance, or 36% if at least 10% goes to charity
- Bands are frozen until 5 April 2031; the residence allowance tapers away for estates over £2,000,000
Inheritance Tax sits alongside the other big lifetime taxes explained in capital gains tax guide and income tax bands guide.
| Estate value | Tax-free allowance | Taxable amount | Inheritance Tax at 40% |
|---|---|---|---|
| £500,000 | £500,000 | £0 | £0 |
| £600,000 | £500,000 | £100,000 | £40,000 |
| £800,000 | £500,000 | £300,000 | £120,000 |
| £1,000,000 (couple, full transfer) | £1,000,000 | £0 | £0 |
Assumes a qualifying home passed to children or grandchildren and an estate under £2,000,000. Source: GOV.UK thresholds, fixed until 5 April 2031, WhatsUK calculation, June 2026.
The nil-rate band of £325,000 and the £175,000 residence nil-rate band are frozen until 5 April 2031, so as house prices and savings grow, more estates are pulled into Inheritance Tax over time. The residence allowance is also tapered for larger estates: for every £2 the estate is worth over £2,000,000, you lose £1 of the residence band, so a £175,000 allowance is gone entirely once the estate reaches £2,350,000.
If you are passing on a property, the buyer's side is covered in stamp duty rates guide, and you can value an estate's assets with the tools on the calculators directory page.
Key Inheritance Tax terms
- Nil-rate band: the £325,000 everyone can pass on free of Inheritance Tax.
- Residence nil-rate band: an extra £175,000 when a home goes to direct descendants.
- Potentially exempt transfer: a gift that becomes fully tax-free if you live seven years after making it.
The nil rate bands for 2026/27
| Threshold | Amount | Who can use it |
|---|---|---|
| Nil rate band (NRB) | £325,000 | Everyone |
| Residence nil rate band (RNRB) | £175,000 | Where a qualifying home is left to direct descendants |
| Combined maximum (individual) | £500,000 | Homeowners leaving property to children/grandchildren |
| Transferable allowance (couples) | £1,000,000 | Married couples/civil partners combining both thresholds |
These thresholds are frozen until 5 April 2031 under the Autumn Budget 2025 announcement.
How IHT is calculated
IHT is charged at 40% on the value of the estate above the relevant threshold. A reduced rate of 36% applies if at least 10% of the estate is left to charity.
Worked example: estate of £650,000, no main home
Estate value: £650,000
Nil rate band: £325,000
Amount above threshold: £325,000
IHT at 40%: £130,000
Worked example: married couple, home worth £450,000, other assets £250,000
Combined estate value: £700,000
Combined nil rate band: £650,000 (£325,000 x 2)
Combined residence nil rate band: £350,000 (£175,000 x 2)
Total threshold: £1,000,000
IHT on estate of £700,000: £0 (below combined threshold)
Inheritance Tax Calculator
Calculate your estate's IHT exposure including nil rate bands and reliefs.
The residence nil rate band: qualifying conditions
The £175,000 RNRB is only available where:
- The deceased owned a qualifying residential property (or previously owned one and downsized after 8 July 2015)
- The property is left to direct descendants (children, grandchildren, adopted children, stepchildren)
- The estate value is below £2,000,000 (the RNRB is tapered for estates above £2,000,000 at £1 for every £2 above the limit)
The RNRB does not apply to properties left to siblings, nieces, nephews, friends, or other non-direct-descendants.
The seven-year gifting rule
Gifts made more than seven years before death are fully exempt from IHT. Gifts made within seven years are subject to taper relief depending on how long before death they were made:
| Years before death | Taper relief on IHT | Effective rate |
|---|---|---|
| 0 to 3 years | 0% | 40% |
| 3 to 4 years | 20% | 32% |
| 4 to 5 years | 40% | 24% |
| 5 to 6 years | 60% | 16% |
| 6 to 7 years | 80% | 8% |
| Over 7 years | 100% | 0% |
Taper relief applies only where the total gifts in the seven years exceed the nil rate band. Gifts within the nil rate band are covered by the band itself.
Certain gifts are always exempt regardless of timing:
| Exemption | Annual limit |
|---|---|
| Annual gift exemption | £3,000 per donor |
| Small gifts exemption | £250 per recipient |
| Wedding gifts (parent to child) | £5,000 |
| Wedding gifts (grandparent) | £2,500 |
| Normal expenditure out of income | No limit (conditions apply) |
| Gifts to charities | No limit |
| Gifts between UK-domiciled spouses | No limit |
Expert Tip
The "normal expenditure out of income" exemption is one of the most powerful IHT planning tools and is frequently underused. If you have surplus income that you do not need for your normal lifestyle, you can give it away regularly as tax-exempt gifts provided: the gifts come from income (not capital), they are habitual, and they do not affect your standard of living. Keep a record of these payments including dates, amounts, and the nature of the income source.The April 2027 pension change: the most significant IHT shift in decades
Currently, pension funds are outside your estate for IHT purposes. When you die, your pension pot passes to your nominated beneficiaries without triggering IHT. This has made pensions a highly effective estate planning tool, often the last pot drawn from in retirement specifically to preserve it as an IHT-free inheritance.
From April 2027, unspent pension funds will be included in the estate for IHT purposes. The Autumn Budget 2025 confirmed this change, giving pension savers just over a year to review their estate plans before the rules shift.
| Pension estate position | Before April 2027 | From April 2027 |
|---|---|---|
| Pension pot value | Outside estate | Inside estate |
| IHT at 40% above threshold | Does not apply to pension | Applies to pension above threshold |
| Beneficiary income tax (drawdown) | Still payable by beneficiaries | Still payable by beneficiaries |
Combined tax impact
The combined effect of IHT plus income tax on inherited pension drawdowns could be extremely significant. A beneficiary in the higher rate band receiving a pension pot that also attracts IHT faces a combined effective rate of approximately 67% on the inherited pension value. Professional estate planning advice before April 2027 is strongly recommended for anyone with a substantial pension fund.IHT on estates above £2 million: RNRB tapering
The residence nil rate band is reduced by £1 for every £2 of estate value above £2,000,000. For an estate of £2,400,000, the available RNRB for the couple is reduced by £200,000 each, from £175,000 each to nil. This effectively creates a 40% "tax cliff" for estates between £2,000,000 and £2,700,000.
Official sources
- GOV.UK: Inheritance Tax
- GOV.UK: Inheritance Tax reliefs
- HMRC: Autumn Budget 2025 pension IHT change documentation
Related Calculators
Frequently Asked Questions
The standard threshold is £325,000, and there is no Inheritance Tax on an estate below it. Leaving a home to children or grandchildren adds up to £175,000, raising the threshold to £500,000 for one person. A married couple or civil partners can combine allowances for up to £1,000,000. These bands are frozen until 5 April 2031.
An individual can pass on £325,000 tax free, or £500,000 if a home goes to direct descendants. Anything left to a spouse or civil partner is exempt regardless of value. Because unused allowances transfer to a surviving spouse, a couple can pass on up to £1,000,000 to their children free of Inheritance Tax.
The standard rate is 40%, charged only on the part of the estate above the tax-free allowance. So a £600,000 estate with the £500,000 allowance is taxed on £100,000, giving a £40,000 bill. The rate falls to 36% if at least 10% of the net estate is left to charity.
It is an extra £175,000 allowance that applies when your home, or a share of it, passes to direct descendants such as children, stepchildren or grandchildren. It is added to the standard £325,000. For estates worth over £2,000,000 it is tapered away by £1 for every £2 above that level.
Most gifts you make are free of Inheritance Tax if you live for seven years after making them. If you die within seven years and your total gifts exceed the £325,000 threshold, tax may apply, reduced by taper relief: the rate falls from 40% within three years to 32%, 24%, 16%, 8% and then nothing after seven years.
You can give away £3,000 a year free of Inheritance Tax, and carry forward one unused year for a £6,000 gift. You can also give as many small gifts of up to £250 per person as you like, plus gifts from surplus income and certain wedding gifts, all outside the seven-year rule.
Only if their whole estate, including the house, is above the tax-free allowance. With the residence allowance, a single parent leaving a home to children has a £500,000 threshold, and a surviving parent can have up to £1,000,000. Tax at 40% is due only on the value above the available allowance.
Yes. Gifts to charity are themselves free of Inheritance Tax, and if you leave at least 10% of your net estate to charity, the rate on the rest of the estate drops from 40% to 36%. This can mean your beneficiaries receive almost as much while a larger share goes to good causes.
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James Hartley is a CIMA qualified financial analyst and Founder and Lead Financial Analyst at WhatsUK, with 8+ years in UK tax, payroll, and compliance. He builds every calculator on WhatsUK and authors all editorial content, ensuring every figure is verified against official HMRC sources before publication.
Sources & Official References
- GOV.UK: Inheritance Tax
- GOV.UK: Inheritance Tax reliefs
- HMRC: Autumn Budget 2025
Last verified:
Disclaimer: This calculator provides estimates based on standard HMRC rates for 2026/27. Results may vary based on individual circumstances. This is not financial advice. Always consult a qualified accountant or CIMA-qualified financial adviser for personal tax matters.