Inheritance Tax UK 2026: A Plain-English Guide for Families

When someone you love dies, the last thing you want to wrestle with is a complex tax system. Yet for many families, inheritance tax (IHT) is an unavoidable part of settling an estate — and the rules can feel bewildering at the worst possible time.

This guide won't bamboozle you with jargon. We'll walk you through everything you genuinely need to know about inheritance tax in the UK in 2026: what it is, whether it applies to your situation, how to work out what's owed, and who can help you through it.

Take a breath. You can do this — and you don't have to do it alone.

What Is Inheritance Tax?

Inheritance tax is a tax charged on the estate of someone who has died. The estate includes everything the person owned: property, savings, investments, personal possessions, and in some cases, gifts made during their lifetime.

In the UK, HM Revenue & Customs (HMRC) collects inheritance tax. It is charged at a rate of 40% — but crucially, only on the portion of the estate that exceeds a certain threshold. Many estates pay no inheritance tax at all, so it's worth understanding the rules before you worry.

According to HMRC, only around 4–5% of UK deaths result in an IHT bill. So while the rules are worth understanding, the majority of families will find that nothing is owed.

The Nil-Rate Band: The £325,000 Threshold

Every person in the UK has an inheritance tax threshold known as the nil-rate band (NRB). In 2026, this stands at £325,000. This means the first £325,000 of an estate is completely free of inheritance tax.

If the total value of the estate is below this figure, no IHT is payable. If it's above, the 40% tax applies only to the amount over £325,000.

A Simple Example

• Estate value: £500,000
• Nil-rate band: £325,000
• Taxable amount: £175,000
• IHT owed: £70,000 (40% of £175,000)

This is a simplified illustration — exemptions, reliefs, and the residence nil-rate band (explained below) can all reduce the final bill significantly.

The Residence Nil-Rate Band: An Extra £175,000

Since 2017, an additional allowance has been available when a family home is passed to direct descendants — children, stepchildren, grandchildren, or their spouses. This is called the Residence Nil-Rate Band (RNRB), and in 2026 it is worth up to £175,000 per person.

Combined with the standard nil-rate band, this means an individual can potentially pass on up to £500,000 free of inheritance tax — as long as a qualifying property is left to direct descendants.

Important Conditions to Be Aware Of

• The property must have been the deceased's main or only home at some point.
• It must be left to direct descendants (children, grandchildren, etc.).
• The RNRB begins to taper away for estates valued above £2 million, reducing by £1 for every £2 over that threshold.
• If someone downsizes or sells their home after 8 July 2015, they may still qualify for all or part of the RNRB — the rules here are complex, so professional advice is strongly recommended.

The Spousal Exemption: Passing Everything to a Partner

One of the most important and reassuring rules in UK inheritance tax law is the spousal exemption. Assets passed between spouses or civil partners who are both UK-domiciled are completely exempt from inheritance tax — regardless of value.

This means that if your husband, wife, or civil partner leaves everything to you, there is no IHT to pay at that point. The tax liability is deferred until the second death.

Transferring Unused Nil-Rate Bands

Here's where it gets genuinely helpful for couples. When the first partner dies and leaves everything to the surviving spouse (meaning their own nil-rate bands weren't used), those allowances can be transferred to the surviving spouse's estate.

This means a surviving spouse could have a combined nil-rate band of up to £650,000, plus a combined residence nil-rate band of up to £350,000 — potentially sheltering up to £1 million from inheritance tax altogether.

You don't need to claim the transfer when the first spouse dies — it can be claimed when the second estate is being settled, even many years later.

Gifts and the 7-Year Rule

One area that often catches families off guard is the treatment of gifts made before death. HMRC doesn't simply look at what someone owned on the day they died — it also looks back at gifts made in the previous seven years.

Potentially Exempt Transfers (PETs)

Most gifts made to individuals are known as Potentially Exempt Transfers (PETs). If the person giving the gift survives for 7 years after making it, the gift falls completely outside the estate for IHT purposes. If they die within 7 years, some or all of the gift may be brought back into the estate and taxed.

Taper Relief

The good news is that the tax on gifts made between 3 and 7 years before death is reduced through taper relief:

• 0–3 years before death: 40% tax (full rate)
• 3–4 years: 32%
• 4–5 years: 24%
• 5–6 years: 16%
• 6–7 years: 8%
• 7+ years: 0% (fully exempt)

Note: Taper relief only applies to the tax on the gift, not to the nil-rate band itself — and it only kicks in once the total of gifts exceeds the nil-rate band.

Annual Gift Exemptions

Some gifts are always exempt from inheritance tax, regardless of the 7-year rule:

• Annual exemption: up to £3,000 per year (unused allowance can carry forward one year)
• Small gifts: up to £250 per person, per year (to any number of individuals)
• Wedding or civil partnership gifts: £5,000 from a parent, £2,500 from a grandparent, £1,000 from anyone else
• Gifts from surplus income: regular gifts made out of normal income — not capital — may be exempt, but must be genuinely regular and not affect the donor's standard of living
• Gifts to charities: always exempt, and leaving 10% or more of the estate to charity reduces the IHT rate on the remainder to 36%

How to Value an Estate

Before you can work out whether inheritance tax is owed, you need to establish the total value of the estate. This is called probate valuation and must reflect the open market value of assets on the date of death.

What to Include

• Property (residential and any other real estate)
• Savings accounts and current accounts
• Investments, stocks, and shares
• Pensions (some pension assets may be included — rules changed significantly from April 2027 but take advice for 2026 estates)
• Life insurance payouts paid to the estate (not those written in trust)
• Business interests and farming land (though these may qualify for relief)
• Personal possessions: vehicles, jewellery, antiques, furniture
• Money owed to the deceased
• Gifts made in the 7 years before death

What You Can Deduct

• Mortgages and secured loans
• Outstanding bills and debts at the time of death
• Funeral expenses (a reasonable amount is deductible)

For property, you'll typically need a professional RICS-accredited valuation. For investments, most financial institutions will provide a date-of-death valuation on request.

Paying Inheritance Tax: The Practicalities

One of the most confusing aspects of IHT is the timing. In most cases, inheritance tax must be paid before probate is granted — yet the estate's assets are usually frozen until probate is in place. This creates a classic catch-22 that catches many families out.

How Families Typically Pay

• Direct Payment Scheme: Banks and NS&I can release funds directly to HMRC from the deceased's accounts before probate — this is the most common route.
• Instalment option: For property, IHT can be paid in 10 annual instalments (interest applies). This helps families who don't want to immediately sell a home.
• Bridging loans or personal funds: Some families pay the IHT themselves initially and are reimbursed when the estate is distributed — seek advice before taking this route.

Key Deadlines

• IHT is due 6 months after the end of the month in which the person died. Interest is charged on late payments.
• You must report the estate to HMRC even if no tax is owed, in most cases — using form IHT400 (for taxable estates) or IHT205/IHT207 for simpler estates.

Business Property Relief and Agricultural Relief

If the estate includes a business or farmland, specialist reliefs may apply:

• Business Property Relief (BPR): Can reduce the taxable value of qualifying business assets by 50% or 100%, depending on the type of asset.
• Agricultural Property Relief (APR): Similarly reduces the value of qualifying agricultural land and buildings.

These are complex areas and absolutely require specialist advice from a solicitor or tax adviser with experience in estate planning.

When Should You Get Professional Help?

You don't legally need a solicitor or tax adviser to deal with a straightforward estate — but professional guidance is strongly recommended in any of the following situations:

• The estate is worth more than £325,000 (or £500,000 if a property is involved)
• The deceased made significant gifts in the 7 years before death
• There is property in another country
• The estate includes a business, farmland, or complex investments
• The will is being contested
• The family circumstances are complex (second marriages, stepchildren, etc.)
• You are unsure whether all assets have been identified

A specialist solicitor, chartered tax adviser, or accountant with estate expertise can save families far more in tax than their fees cost — and prevent costly mistakes. HMRC also has a dedicated IHT helpline: 0300 123 1072.

A Step-by-Step Checklist for Families

1. Register the death and obtain multiple certified copies of the death certificate — you'll need them for banks, insurers, and HMRC.
2. Locate the will and identify the executor(s). If there's no will, the rules of intestacy apply.
3. List all assets and liabilities as at the date of death.
4. Obtain professional valuations for property and significant possessions.
5. Contact financial institutions to request date-of-death valuations.
6. Identify any gifts made in the last 7 years by reviewing bank statements and speaking to family members.
7. Calculate the estate value and check which nil-rate bands and exemptions apply.
8. Complete and submit IHT forms to HMRC — seek professional help if needed.
9. Pay any IHT owed within 6 months of the month of death.
10. Apply for probate once IHT has been paid or confirmed as not owed.
11. Distribute the estate according to the will or intestacy rules.

How NAFD Funeral Directors Can Help at the Very Beginning

At the immediate point of bereavement, your first calls are often to a funeral director — and an NAFD-accredited funeral director can do more than arrange the funeral. They can help you understand which documents you'll need, signpost you to bereavement support services, and help ensure you have the certified death certificates required to begin the probate and IHT process.

NAFD members follow a strict Code of Practice and provide transparent pricing — one less thing to worry about when you have so much on your plate. You can find a trusted NAFD funeral director in your area quickly and easily through our directory.

Once the funeral is arranged, use our funeral cost calculator to help plan costs and understand what expenses may be deductible from the estate.