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. If you're at the very start of this process, our NAFD member funeral directors can help you take the first steps with compassion and expertise. /find-a-funeral-director/

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 data for the 2023–24 tax year (the most recent available), only around 4.4% of UK deaths resulted in an IHT charge. So while the rules are worth understanding, the majority of families will find that nothing is owed.

What Is the Inheritance Tax Threshold in 2026? (The Nil-Rate Band)

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 2026: An Extra £175,000 for Homeowners

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.

Do Spouses Pay Inheritance Tax? The Spousal Exemption Explained

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.

Do I Need to Pay Inheritance Tax? A Quick Checklist

Before worrying about calculations, run through these questions. Many families find they owe nothing at all.

• Is the estate worth less than £325,000? If yes, no IHT is due in most cases.
• Was everything left to a spouse or civil partner? If yes, no IHT is payable on the first death.
• Does the estate include a family home left to children or grandchildren? The Residence Nil-Rate Band could raise the threshold to £500,000.
• Are you dealing with a married couple's combined estate? Unused nil-rate bands can be transferred, potentially shielding up to £1 million.
• Did the deceased make large gifts in the seven years before death? These may be added back into the estate value.

If any of the above situations apply, your threshold may be higher than you think — or the bill lower. Work through each section below, or speak to a probate solicitor or tax adviser who can assess the estate precisely. NAFD member funeral directors can often point you towards trusted local professionals.

/find-a-funeral-director/

Gifts and the 7-Year Rule: What Counts as Part of the Estate?

One of the most misunderstood areas of inheritance tax is how gifts made during a person's lifetime are treated after their death.

The 7-Year Rule Explained

If the person who died gave away money, property, or other assets within the seven years before their death, those gifts may be included in the value of their estate for IHT purposes. These are known as Potentially Exempt Transfers (PETs).

The good news is that the longer ago the gift was made, the less tax is owed — thanks to taper relief:

• 3–4 years before death: 32% tax rate (80% of the full 40%)
• 4–5 years before death: 24% tax rate (60% of the full 40%)
• 5–6 years before death: 16% tax rate (40% of the full 40%)
• 6–7 years before death: 8% tax rate (20% of the full 40%)
• More than 7 years before death: no IHT due on that gift

Note: taper relief only applies once the gift value exceeds the nil-rate band — it reduces the tax on the gift, not the total estate.

Annual Gift Exemptions

Not every gift is caught by the 7-year rule. HMRC allows certain gifts to be made completely free of IHT:

• £3,000 annual exemption — each person can give away up to £3,000 per tax year, free of IHT. Unused allowance can be carried forward one year.
• Small gifts exemption — gifts of up to £250 per person to any number of individuals per year.
• Wedding or civil partnership gifts — up to £5,000 to a child, £2,500 to a grandchild, or £1,000 to anyone else.
• Regular gifts from income — gifts made regularly out of income (not capital), which don't affect your standard of living, can be exempt. These must be documented carefully.

If you're unsure whether gifts made by the deceased need to be declared, a probate solicitor or HMRC's IHT helpline (0300 123 1072) can advise.

How to Value an Estate for Inheritance Tax

Before you can work out whether IHT is due, you need to know the total value of everything the deceased owned on the date of their death. This is called the gross estate. You then deduct any debts to arrive at the net estate.

What to Include

• Property — the market value of any homes, land, or buildings (not the mortgage outstanding, which is a debt)
• Savings and bank accounts — the balance on the date of death
• Investments and stocks — valued at the lower of the two prices quoted on the stock exchange on the date of death (the 'quarter-up' rule may apply)
• Pensions — most defined contribution pension pots are outside the estate currently, but this is changing from April 2027 — seek up-to-date advice
• Life insurance — policies not written in trust are included; those held in trust usually fall outside the estate
• Personal possessions — jewellery, vehicles, furniture, art, and collectibles at their open market value
• Business assets — may qualify for Business Relief (formerly Business Property Relief), reducing their value for IHT purposes by up to 100%
• Gifts made in the last 7 years — see above

What You Can Deduct

• Outstanding mortgage balance
• Other debts (credit cards, loans, utility bills)
• Funeral expenses — these are deductible from the estate value

Valuing a property accurately is important — HMRC may challenge figures that appear too low. For complex estates, engaging a RICS-accredited surveyor and a probate solicitor is strongly recommended. You can use our /funeral-cost-calculator/ to understand funeral costs, which are deductible from the estate.

How and When Is Inheritance Tax Paid?

Understanding the payment process can prevent costly mistakes — HMRC charges interest on late payments.

The Six-Month Deadline

Inheritance tax must be paid to HMRC within six months of the end of the month in which the person died. For example, if someone died in March 2026, IHT must be paid by 30 September 2026. After this date, HMRC charges interest on any unpaid amount.

Who Pays It — and From Where?

IHT is almost always paid from the estate itself before the estate is distributed to beneficiaries. The executor or administrator of the estate is responsible for ensuring it is paid on time.

This creates a practical challenge: banks typically won't release funds from the deceased's accounts until probate is granted — but probate often cannot be obtained until IHT is paid (or at least the first instalment). Ways around this include:

• Direct payment from the deceased's bank account — some banks participate in a scheme allowing IHT to be paid directly to HMRC before probate. Ask the bank about their 'direct payment scheme'.
• Instalments on property — IHT on property can be paid in ten equal annual instalments, though interest applies. This is useful when there is not enough liquid cash in the estate.
• A bridging loan — some families take out a short-term loan to cover IHT while awaiting probate, then repay it once funds are released.

Reporting the Estate to HMRC

Even if no IHT is due, you may need to report the estate to HMRC using form IHT205 (for simpler estates) or IHT400 (for more complex ones). Your probate solicitor will advise which applies. Submitting incorrect valuations can result in penalties.

When Should You Get Professional Help With Inheritance Tax?

Not every estate needs a solicitor or tax adviser — but many do. Here are the situations where professional guidance is not just helpful but essential:

• The estate is worth more than £325,000 (or £500,000 with the RNRB)
• The deceased owned property, especially abroad
• There were gifts, trusts, or complex financial arrangements during the person's lifetime
• The deceased ran a business or owned agricultural land
• The will is disputed or there is no will (intestacy rules apply)
• There are beneficiaries who live abroad
• Pensions are involved — rules are changing significantly from April 2027

Who Can Help?

• Probate solicitors — handle the legal side of settling the estate, including IHT reporting
• Chartered tax advisers (CTAs) — specialists in IHT planning and mitigation
• HMRC's IHT helpline — 0300 123 1072 (Monday to Friday, 9am to 5pm)
• Your NAFD funeral director — while not tax advisers, NAFD member funeral directors are experienced in signposting families to trusted local professionals at an incredibly difficult time

You can find a trusted, accredited NAFD member funeral director near you here: /find-a-funeral-director/

The cost of professional advice is typically deductible from the estate for IHT purposes — so it often pays for itself.