UK inheritance tax thresholds in 2026

Inheritance tax (IHT) is charged at 40% on the value of an estate above the tax-free thresholds at the date of death. About 4% to 5% of UK estates pay any inheritance tax in any given year, but the proportion has been creeping up steadily as house prices have outpaced the long-frozen thresholds. With the standard nil-rate band having been frozen at £325,000 since 2009 and now confirmed frozen until April 2030 in the latest Finance Act, more estates are being drawn into the IHT net every year. This guide explains the thresholds and reliefs as they stand in 2026, in plain English, with the practical points that matter when you are sitting down to write a will.

The standard nil-rate band: £325,000. Every individual has a nil-rate band of £325,000. Everything below that figure is taxed at 0%. This figure has not moved since the 2009 Finance Act and, following announcements at the November 2024 Autumn Budget that the freeze would be extended, it will remain at £325,000 until at least April 2030. In real terms — adjusted for inflation — £325,000 in 2009 is equivalent to roughly £505,000 today. The frozen band has been called a 'fiscal drag' and is one of the most reliable ways the Treasury increases its tax take without putting up a headline rate.

The residence nil-rate band: up to £175,000. Introduced in stages between 2017 and 2020, the residence nil-rate band (RNRB) gives you an additional tax-free allowance of up to £175,000 — but only if you leave your main residence (or its value) to direct descendants: children, stepchildren, adopted children, foster children, and grandchildren. The RNRB tapers down by £1 for every £2 the estate is worth above £2 million, so estates above £2.35 million receive no RNRB at all. Like the standard nil-rate band, the RNRB is frozen at £175,000 until April 2030.

Spousal exemption. Anything left to a UK-domiciled spouse or civil partner is exempt from inheritance tax, regardless of value. There is no upper limit. This means most married couples pay no IHT at all on first death, with everything passing to the survivor tax-free.

Transferable nil-rate band. When the first spouse dies, any unused portion of their nil-rate band can be transferred to the survivor. The same applies to the residence nil-rate band. In practice, this means a married couple together can pass on up to £325,000 + £325,000 + £175,000 + £175,000 = £1 million completely free of inheritance tax, provided the family home is left to direct descendants and the combined estate is below £2 million.

Charity exemption and the 36% rate. Anything left to a UK-registered charity is fully exempt from inheritance tax. Better still, if you leave at least 10% of your net estate (after deducting the available nil-rate bands and other exemptions) to charity, the inheritance tax rate on the remaining estate drops from 40% to 36%. For estates with significant IHT liability, this is a meaningful incentive — and it is increasingly common for wills to include a 'topping-up' clause that ensures the 10% threshold is met automatically.

The seven-year rule on lifetime gifts. Outright gifts to individuals during your lifetime are 'potentially exempt transfers' — they fall completely out of your estate for IHT purposes if you survive seven years from the date of the gift. If you die within seven years, the gift is brought back into your estate. Where you die within three years, the full 40% applies; thereafter the rate tapers in 20-percentage-point steps known as 'taper relief'. Note that taper relief reduces the tax on the gift, not the value of the gift itself, so it only helps when the gift is large enough to use up the nil-rate band on its own. Smaller gifts that fall within the nil-rate band do not benefit from taper relief at all.

Annual gift exemptions. You can give away up to £3,000 each tax year completely exempt from IHT (the annual exemption), and this can be carried forward one year if unused. Gifts of up to £250 to any number of people each year are exempt under the small gifts exemption. Wedding gifts — £5,000 to a child, £2,500 to a grandchild or great-grandchild, £1,000 to anyone else — are also exempt. Most importantly, regular gifts out of surplus income are completely exempt regardless of amount, provided they are habitual, paid out of post-tax income, and do not affect your standard of living. This is one of the most underused IHT planning tools.

Business Property Relief and Agricultural Property Relief. Qualifying business assets (typically shares in unlisted trading companies, sole-trader and partnership interests) attract 100% Business Property Relief, meaning they pass IHT-free. Land used for agricultural purposes attracts up to 100% Agricultural Property Relief. Both reliefs are subject to qualifying conditions and minimum ownership periods (typically two years), and both have been the subject of significant change announced at the October 2024 Budget — from April 2026, the combined value of business and agricultural property qualifying for full 100% relief will be capped at £1 million per estate, with anything above that figure receiving 50% relief instead of 100%. This is a substantial change for farming and family business estates and warrants specific planning advice.

Pensions and IHT — major change from April 2027. Currently, most defined-contribution pension pots fall outside your estate for IHT purposes — they are governed by the trustee's discretion under an Expression of Wish, and the value passes to your nominated beneficiaries free of IHT. From 6 April 2027, this will change: most unused pension funds and death benefits will be brought within the IHT net. This was confirmed at the November 2024 Autumn Budget and represents one of the most significant changes in UK estate planning for a generation. If your pension pot is large, this needs reviewing now.

Practical estate planning in 2026. The four core levers you have are: (1) leaving the family home to direct descendants to capture the residence nil-rate band, (2) lifetime gifting using the seven-year rule and the annual exemptions, (3) ensuring at least 10% of your net estate goes to charity if you have meaningful IHT exposure, and (4) where appropriate, holding trading business or agricultural assets in a way that captures the available reliefs (subject to the new £1m cap from April 2026). For most ordinary estates a properly drafted will using the spousal and residence exemptions will eliminate IHT entirely. For estates close to or above £1 million per couple, focused planning with a will writer or specialist solicitor is well worth the fee.

Important note. This guide is general information and not personal tax advice. Inheritance tax law is complex, the rules are changing, and the right answer depends on your specific circumstances. Talk to a qualified will writer, accountant or tax adviser before making major decisions. Will Guard's consultants can talk you through the basics and refer you to a specialist tax adviser where your estate genuinely needs one.