What Is Inheritance Tax? UK Guide to IHT 2026/27

What is inheritance tax? Inheritance Tax (IHT) is a tax that can be charged on the estate of someone who dies.

An estate generally includes a person's property, money, investments and possessions. However, Inheritance Tax is not normally charged at 40% on everything someone owns. The calculation takes account of allowances, exemptions, reliefs, debts and certain gifts before the amount potentially subject to tax is established.

For the 2026/27 tax year, the standard Inheritance Tax rate is 40%. The main tax-free allowance, known as the Nil Rate Band, is £325,000. A qualifying estate may also benefit from a Residence Nil Rate Band of up to £175,000 when a qualifying home is passed to direct descendants.

This guide explains what Inheritance Tax is, how it works, who pays it and which allowances and reliefs may affect the amount due.

What is Inheritance Tax?

Inheritance Tax is a tax on the estate of someone who has died.

For IHT purposes, an estate can include:

• Property and land
• Bank and savings accounts
• Shares and investments
• Personal possessions
• Certain business interests
• Certain agricultural assets
• Some interests in trusts
• Certain gifts made during the person's lifetime
• Other assets and transfers that fall within the Inheritance Tax rules

The important point is that the value of the estate is only the starting point.

The amount of Inheritance Tax payable depends on the particular circumstances of the estate and which allowances, exemptions and reliefs are available.

This means that two people with estates worth exactly the same amount could potentially have very different Inheritance Tax liabilities.

How does Inheritance Tax work?

The basic principle is relatively straightforward.

You start with the value of the estate and then consider relevant debts, exemptions, reliefs and available tax-free allowances.

A simplified calculation looks like this:

Estate value

minus

Allowable debts, exemptions and reliefs

minus

Available tax-free allowances

equals

Potentially taxable estate

The standard rate of Inheritance Tax is then generally 40% of the taxable amount.

Simple example

Suppose an estate is worth £500,000 and, for simplicity, only the standard £325,000 Nil Rate Band is available.

The calculation would be:

£500,000 − £325,000 = £175,000

40% of £175,000 is:

£70,000

So the simplified IHT liability would be £70,000.

This is only an illustration. The actual calculation could be different if the estate involves a qualifying residence, a spouse or civil partner, lifetime gifts, charitable gifts, business or agricultural assets, trusts or other reliefs.

What is the Inheritance Tax threshold?

The main Inheritance Tax threshold is called the Nil Rate Band (NRB).

For 2026/27, the Nil Rate Band is:

The Nil Rate Band has been fixed at £325,000 for many years and is currently legislated to remain at that level through 5 April 2031.

The Nil Rate Band is not simply a tax-free amount that is paid to beneficiaries.

Instead, it is an allowance used when determining how much of an estate is subject to Inheritance Tax.

For example, if an estate is worth £400,000 and the only available allowance is £325,000:

£400,000 − £325,000 = £75,000

The standard 40% rate would therefore produce a simplified liability of:

£30,000

What is the Residence Nil Rate Band?

The Residence Nil Rate Band (RNRB) is an additional Inheritance Tax allowance that can apply when a qualifying residence is passed to direct descendants.

For 2026/27, the maximum Residence Nil Rate Band is:

The RNRB can potentially increase the amount that can pass free of IHT.

However, it is subject to conditions.

The home generally needs to be a qualifying residence and it must pass to qualifying direct descendants.

There is also a taper for larger estates.

The RNRB starts to reduce where the relevant estate value exceeds:

The allowance is generally reduced by £1 for every £2 by which the estate exceeds the £2 million taper threshold.

Important

The Residence Nil Rate Band does not simply mean that your home is automatically exempt from Inheritance Tax.

It is an additional allowance that can reduce the amount of an estate subject to IHT when the relevant conditions are satisfied.

Can married couples have a £1 million Inheritance Tax allowance?

Potentially.

Unused Nil Rate Band can generally be transferred between spouses or civil partners.

Unused Residence Nil Rate Band can also potentially be transferred, subject to the relevant rules.

This means a qualifying surviving spouse or civil partner can potentially have access to combined allowances of up to:

£650,000 of Nil Rate Bands

plus

£350,000 of Residence Nil Rate Bands

giving a potential total of:

£1 million

However, this is not an automatic £1 million allowance for every married couple.

The actual amount depends on what happened when the first spouse or civil partner died, how much of the available allowances were used and whether the conditions for the Residence Nil Rate Band are met.

What assets are included in an estate?

An estate can contain much more than a person's house and bank account.

Property

This can include:

• Main residences
• Second homes
• Buy-to-let properties
• Land
• Overseas property

Bank accounts and investments

This can include:

• Current accounts
• Savings accounts
• ISAs
• Shares
• Investment portfolios
• Other relevant financial assets

Personal possessions

These can include:

• Cars
• Jewellery
• Artwork
• Antiques
• Collectibles
• Other valuable possessions

Business and agricultural assets

Certain business and agricultural assets may qualify for specific Inheritance Tax reliefs.

The rules around these reliefs changed from 6 April 2026, so anyone with significant business or agricultural assets should consider the current rules rather than relying on older IHT guidance. See the current Business Relief and Agricultural Relief changes.

Is Inheritance Tax charged at 40% on everything?

No.

This is one of the most common misunderstandings about Inheritance Tax.

The standard rate is 40%, but it generally applies to the chargeable amount above the available allowances and after relevant exemptions and reliefs have been taken into account.

For example, suppose someone has an estate worth £600,000 and only the standard £325,000 Nil Rate Band is available.

The simplified calculation would be:

£600,000 − £325,000 = £275,000

40% of £275,000 is:

£110,000

It would therefore be incorrect to simply calculate 40% of the entire £600,000 estate.

Are gifts subject to Inheritance Tax?

Potentially.

Certain gifts made during a person's lifetime can be relevant to the Inheritance Tax calculation.

The rules depend on:

• What was given
• Who received it
• The value of the gift
• When the gift was made
• Whether an exemption applies
• Whether the person making the gift survived for seven years
• Whether other gifts were made

This is why the seven-year rule for gifts should not be interpreted as simply meaning:

"If I give something away, it is automatically outside my estate."

Some lifetime gifts can still be relevant for IHT purposes. Read more about Inheritance Tax and gifts.

What is taper relief?

Taper relief can reduce the amount of Inheritance Tax payable on certain lifetime gifts where the donor dies between three and seven years after making the gift.

However, taper relief does not simply make a gift completely tax-free after three years.

The calculation depends on the value and timing of the gifts and the available Nil Rate Band.

Where significant gifts have been made during the seven years before death, the position should be calculated carefully.

Do spouses pay Inheritance Tax when they inherit from each other?

Transfers between spouses or civil partners can generally benefit from the spouse or civil partner exemption, subject to the applicable rules.

This can have a major effect on estate planning.

For example, a person may leave assets to their surviving spouse rather than directly to their children.

The surviving spouse can potentially inherit without an immediate IHT charge on that transfer, while unused allowances can potentially be available on the survivor's eventual death.

This is one of the reasons why the circumstances of the first death can be important when calculating the IHT position on the second death.

Do you pay Inheritance Tax on your house?

A home can form part of an estate for Inheritance Tax purposes.

However, the Residence Nil Rate Band may provide an additional allowance where the relevant conditions are satisfied.

For 2026/27, the maximum RNRB is £175,000.

It can apply where a qualifying residence is passed to direct descendants, subject to the detailed rules.

For larger estates, the £2 million taper threshold is also important.

So you should not simply assume that the entire value of your home will either be taxable or tax-free.

Do pensions count for Inheritance Tax?

Pensions are an increasingly important part of estate planning. Read our guide to pensions and Inheritance Tax.

For deaths occurring on or after 6 April 2027, most unused pension funds and pension death benefits will be brought within the value of the deceased person's estate for Inheritance Tax purposes, subject to specific rules and exclusions.

This means that the way pensions are considered for IHT planning is changing.

If you are planning your estate today, it is important to consider both the current rules and the changes that apply from April 2027.

What about Business Relief and Agricultural Relief?

Some qualifying business and agricultural assets can receive relief from Inheritance Tax.

The rules changed from 6 April 2026.

The current rules include a £2.5 million allowance for 100% Agricultural Property Relief and Business Property Relief in qualifying circumstances. Qualifying value above the allowance generally receives 50% relief, subject to the detailed rules. Read the current Business Relief and Agricultural Relief guidance.

The position can become complicated where someone owns:

• A family business
• Shares in a private company
• Agricultural land
• A working farm
• Business premises
• Mixed-use assets

These assets should therefore be assessed using the current rules rather than assuming that the historic treatment of Business Relief or Agricultural Relief still applies.

Who pays Inheritance Tax?

Inheritance Tax is normally paid from the estate.

The person dealing with the estate is generally responsible for arranging the payment to HMRC.

Where there is a will, this person is usually the executor.

Beneficiaries do not normally pay IHT simply because they inherit money or assets.

However, there can be other tax consequences depending on what they inherit and what they subsequently do with the assets.

When does Inheritance Tax have to be paid?

Where IHT is due, the personal representatives need to deal with the tax as part of administering the estate.

This can involve:

1. Identifying the deceased person's assets
2. Valuing the assets
3. Identifying debts and liabilities
4. Reviewing lifetime gifts
5. Identifying exemptions and reliefs
6. Calculating available allowances
7. Calculating the potential IHT liability
8. Reporting the estate to HMRC where required
9. Paying the tax
10. Continuing with the administration of the estate

Some estates require detailed reporting.

This is where HMRC's IHT400 becomes important.

IHT400

The IHT400 is the main account form used to report an estate where a full Inheritance Tax account is required.

If you're dealing with an estate, our IHT400 Guide explains the form and associated notes in more detail.

You can also use our Inheritance Tax Forms Directory to find the relevant HMRC forms.

How is Inheritance Tax calculated?

There is no single calculation that applies to every estate.

A simplified calculation might look like this:

Total estate

£900,000

Less Nil Rate Band

− £325,000

Potential taxable amount

£575,000

40% IHT

£230,000

But this example deliberately leaves out many factors that could change the result.

The actual calculation could be affected by:

• Residence Nil Rate Band
• Transferable allowances
• Spouse or civil partner exemption
• Lifetime gifts
• Charitable gifts
• Business Relief
• Agricultural Relief
• Trusts
• Debts
• Other exemptions
• The ownership structure of assets

That is why a simple "estate value × 40%" calculation can be misleading. For a step-by-step explanation, read how Inheritance Tax is calculated.

How much Inheritance Tax will I pay?

The answer depends on the circumstances of the estate.

For example, someone with a £750,000 estate could have a very different IHT liability from another person with a £750,000 estate if one has:

• A qualifying home
• Children who inherit the home
• A deceased spouse whose unused allowances can be transferred
• Significant lifetime gifts
• Business assets
• Agricultural assets
• Charitable gifts

The headline value of the estate is therefore only the starting point. See our Inheritance Tax examples for worked examples.

If you want an initial estimate based on your own circumstances, use our:

Free Inheritance Tax Calculator

Calculate your potential Inheritance Tax liability.

The calculator is designed to provide an initial planning estimate. It does not replace professional legal, tax or financial advice.

How can Inheritance Tax be reduced?

There are a number of legitimate estate-planning strategies that can potentially reduce an IHT liability.

Depending on the circumstances, these may include:

• Making certain lifetime gifts
• Using available gift exemptions
• Leaving assets to a spouse or civil partner
• Leaving a qualifying residence to direct descendants
• Reviewing Business Relief
• Reviewing Agricultural Relief
• Making charitable gifts
• Considering trusts
• Reviewing how assets are owned
• Planning around pensions
• Using available allowances effectively

However, there is no single strategy that is suitable for every person.

Estate planning should take account of the individual's assets, family circumstances, objectives and the current tax rules.

Is Inheritance Tax the same as probate?

No.

Inheritance Tax and probate are separate things.

Inheritance Tax is a tax consideration relating to an estate.

Probate is the legal process through which someone is authorised to administer an estate where a grant of probate is required.

An estate can involve both IHT and probate, but they are not the same process.

If you are dealing with an estate and are unsure whether probate is required, see our guide:

Do I Need Probate?

What should I do if I think my estate could be subject to Inheritance Tax?

A useful first step is to build a basic picture of the estate.

Consider:

1. Property

What properties does the person own and what are they worth?

2. Savings and investments

Include bank accounts, investments, shares and other relevant financial assets.

3. Personal possessions

Consider valuable possessions such as jewellery, vehicles, artwork and antiques.

4. Pensions

Consider the value and type of pension arrangements, particularly with the April 2027 changes approaching.

5. Lifetime gifts

Identify significant gifts made during the seven years before death and any earlier gifts that may still be relevant.

6. Debts

Identify mortgages, loans and other allowable liabilities.

7. Family circumstances

Consider whether there is a surviving spouse or civil partner and whether children or other direct descendants are inheriting the home.

8. Business and agricultural assets

Check whether relevant reliefs may apply.

Once you have gathered this information, you can use an Inheritance Tax calculator to obtain an initial estimate.

Use our free Inheritance Tax Calculator

If you want to estimate your potential IHT liability, our free calculator can help you work through the main factors that affect the calculation.

Calculate your potential Inheritance Tax liability.

It is designed as a planning tool and should not be treated as a substitute for professional advice.

Frequently Asked Questions

What is Inheritance Tax in simple terms?

Inheritance Tax is a tax that can be charged on the estate of someone who dies. The standard rate is 40%, but it generally applies to the chargeable amount after relevant allowances, exemptions and reliefs have been taken into account.

What is the Inheritance Tax threshold in 2026/27?

The main Nil Rate Band is £325,000. A qualifying estate may also receive a Residence Nil Rate Band of up to £175,000 if the relevant conditions are satisfied.

What is the Inheritance Tax rate?

The standard Inheritance Tax rate is 40%. A reduced rate of 36% can apply to qualifying estates where at least 10% of the relevant amount is left to charity.

Can a married couple have a £1 million Inheritance Tax allowance?

Potentially. Unused Nil Rate Band and Residence Nil Rate Band can potentially be transferred between spouses or civil partners. In qualifying circumstances, combined allowances can reach £1 million.

Do I pay Inheritance Tax on my house?

A home can form part of the estate, but a qualifying estate may benefit from the Residence Nil Rate Band where a qualifying residence passes to direct descendants. The maximum RNRB is £175,000 for 2026/27.

Are gifts included in Inheritance Tax?

Some lifetime gifts can be relevant to IHT, particularly gifts made within seven years before death. The treatment depends on the type and circumstances of the gift.

Do pensions count for Inheritance Tax?

From 6 April 2027, most unused pension funds and pension death benefits will be brought within the estate for IHT purposes, subject to the relevant rules and exclusions.

Who pays Inheritance Tax?

IHT is normally paid from the estate by the person dealing with the estate, usually the executor where there is a will. Beneficiaries do not normally pay IHT simply because they inherit assets.

Is Inheritance Tax charged at 40% on the whole estate?

No. The 40% rate generally applies to the chargeable amount after relevant allowances, exemptions and reliefs have been taken into account.

How do I calculate my Inheritance Tax?

Start by valuing the estate, then consider debts, gifts, exemptions, reliefs and available allowances. Our free Inheritance Tax Calculator can provide an initial estimate.

Final thoughts

Inheritance Tax can initially appear complicated because the calculation involves much more than the total value of someone's estate.

The £325,000 Nil Rate Band, £175,000 Residence Nil Rate Band, transferable allowances, gifts, pensions, property, trusts, business assets, agricultural assets and other reliefs can all affect the final calculation.

The best starting point is to understand which parts of the rules may apply to the estate, establish an approximate value and then calculate the potential liability.

Want to see what your potential bill could be?

Use the free Inheritance Planner Inheritance Tax Calculator.

Calculate your potential Inheritance Tax liability.

Sources and further reading

• GOV.UK: How Inheritance Tax works
• GOV.UK: Inheritance Tax thresholds and rates
• GOV.UK: Residence Nil Rate Band and passing on a home
• GOV.UK: Inheritance Tax on unused pension funds and death benefits
• GOV.UK: Agricultural Property Relief and Business Property Relief changes

This article is for general information and planning purposes and does not constitute legal, tax or financial advice. Inheritance Tax rules can change and the treatment of an estate depends on individual circumstances.